Hello,

In the modern world, the act of investing can take many different shapes and forms. While traditional asset classes like equities and bonds remain the most popular choice, greater accessibility and better information has seen alternative assets (or ‘Alts’ for short) become much more commonplace in portfolios. Today, alts like commodities and private capital account for 15% of global assets under management.

 

Alternative assets are most commonly utilised for their diversification qualities, with some having close to zero or even negative correlations with traditional assets, resulting in smoother returns in multi-asset portfolios. But in recent history, alts have also demonstrated their potential for significant returns. Gold is probably the best example, growing over 100% in EUR terms over the last 3 years, acting as a key performance driver for portfolios. The explosion in value of certain collectibles has also caught attention, and perhaps redefined what investing can mean – for example, the value of original Pokémon cards has grown roughly 3,800% since 2004 (check those attics and drawers!).

 

That said, alternative assets in isolation can be quite risky. The intrinsic value of alts such as commodities can be very tricky to approximate since these assets don’t produce any cash flows like a company or bond does. For that reason, specialist knowledge is often required to manage alts appropriately within multi-asset portfolios.

 

As always, if you wish to discuss anything in this newsletter in further detail, please do get in touch.