Wattle Partners has adopted the philosophy to ‘challenge everything’ as we move into the post COVID-19 world. There seems to be some level of complacency creeping into markets, investment advice and all matters of economics in recent months meaning it is becoming increasingly importance to question the conventional wisdom. It is now abundantly clear that the traditional approach of holding long-term bonds and ‘blue-chip’ shares will find it difficult to deliver the required returns in the years to come, for differing reasons, and that one of the most important strategies will be extracting every dollar of returns from low risk allocations as possible and also protecting downside in the equity components of portfolios. The only way this is likely to be possible, is to increase the use of non-traditional, alternative assets.
The asset class is much broader and deeper than many understand, hence we provide a short summary this month and will embark on more detailed analysis in future issues. Essentially, alternative assets are anything that isn’t a stock, bond or bank account, which by their definition suggests they have less correlation with these asset classes and therefore offer diversification benefits to portfolios.
- Land – The name speaks for itself, owning land directly to benefit from its scarcity over time;
- Timber: Timber tends to grow consistently year after year and remains a key input into many products starting with paper;
- Precious Metals: Gold bullion, silver, platinum, palladium, the list extends with some offering both industrial uses and currency alternatives;
- Cryptocurrency: Becoming more widely accepted by the day, offers unique exposure to the future of global currency;
- Infrastructure: Anything from power plants, solar farms, airports, electricity grids to roll roads and rail roads.
- Long-short: Equity or bond strategies that bet on shares going both up and down, offering downside protection;
- Event driven: Primarily equity strategy that seek to invest where companies are subject to takeover offers, mergers, asset sales etc.
- Activist: Similar to event-driven but with the manager themselves advocating for change;
- Market neutral: Similar to long-short but where the long positions equal the short positions in size;
- Global macro: Traditional hedge fund strategy investing based on major macroeconomic events like inflation or GDP growth;
- Arbitrage: Exploiting mis-pricings, whether between markets (small vs. large) or where a takeover offer is in play;
- Distressed: Opportunistic strategy that seeks to buy bonds of struggling companies and help them recover;
- Quantitative: Investment decisions based solely on computer driven ‘screens’ of an asset class;
- Private equity: Ownership of non-listed companies;
- Private credit: Direct loans, traditional to small and medium sized businesses;
- Venture capital: High growth, technology driven investments into loss making companies.