As investors seek diversification to hedge risks in the stock and bond markets, the reasons for adopting a 50/30/20 portfolio are growing. A traditional balanced portfolio allocates 60% to stocks and 40% to fixed income. Investors who choose to include alternative investments in these portfolios typically designate no more than 5% of their holdings to that category, said Ayako Yoshioka, senior portfolio manager at Wealth Improvement Group. Strategies such as private equity and venture capital have higher barriers to entry and carry greater risks than traditional financial assets such as stocks, bonds and cash. But investor interest in the asset class is growing, with Bank of America saying a recent survey of independent financial advisers found nearly three-quarters of respondents expected to increase allocations. Currently, about half of respondents allocate 1% to 10% of recommended assets to alternative investments, while 16% have no investments. The surge in interest is no accident. Investors worried about the long-term prospects of expensive stocks and bond yields starting to move higher are looking for assets that are not correlated with either market. “Stocks are highly valued, bonds are seeing a lot of interest rate swings, and you’re not getting the total return on bonds like you used to,” Yoshioka said. “So, let me allocate a little bit, because it’s not 60/40, maybe ( 50/30/20),” she said, clarifying that 50% is allocated to stocks, 30% to bonds, and the remaining 20% to alternatives. Reasons for the Alternative There are two reasons for the alternative. When it comes to stocks, investors worry that the market, which is entering its third year of a bull run, is unlikely to continue delivering annual returns of more than 20%, and say reliance on the Big Seven is unlikely to deliver longer-term returns for investors. . In fact, the highly concentrated and overvalued nature of the market prompted Goldman Sachs to issue a bearish long-term forecast, with the firm’s David Kostin projecting annualized nominal total returns for the S&P 500 over the coming period. will be only 3%. On the bond front, investors are worried that recent volatility in the bond market — for example, the benchmark U.S. 10-year Treasury yield briefly topped 4.3% this week — reflects worries about the government’s precarious fiscal position. Investors are worried that the massive federal spending policies proposed by both U.S. presidential candidates will cause interest rates to spike. “Consumers are not overleveraged. Businesses are not overleveraged. I think that’s why everyone is so concerned about U.S. debt,” Yoshioka said. “Is the United States an overleveraged country right now?” In early October, billionaire hedge fund manager Paul Tudor Jones said he would avoid fixed income entirely and instead allocate to gold, Bitcoin and commodities. To be sure, other investors remain constructive on the outlook for stocks, saying they remain optimistic about the asset class as a growth area, especially over the next three to five years, even if some near-term volatility is likely. . “I think if you’re just speaking very generally, 50% is probably a little bit on the thin side if you want to get the type of growth that most of our investors are looking at, regardless of their risk level,” said Mark Malik, head of investments at Siebert. Mark Malek said. Still, investors say the asset class can help hedge against real risks that stocks and bonds previously had. “It’s not a question of whether the S&P 500 will continue to lead. I think the question is if it doesn’t continue to lead, what protection do you have,” Yoshioka said. “You need to have some kind of diversification aspect in case it shifts somewhere and you have exposure — whether it’s Bitcoin, gold, international assets, small caps or alternatives — those are Areas where you can diversify, just in case leadership does change Some winners With the rise of financial advisory products and education, the number of investors putting their assets into alternative investments is expected to “increase significantly,” according to Bank of America. ”. An actively traded exchange-traded fund proposed by State Street and Apollo Global Management that invests in public and private credit could open access to private markets if the strategy can pass regulatory hurdles. Companies expected to benefit from rising alternative investment interest include Blackstone Group Inc., which Bank of America said has a “significant first-mover” advantage, while Apollo Global Management Inc., Ares Management Inc., KKR & Co. and The Carlyle Group Inc. may also benefit. Invesco Global Listed Private Equity ETF (PSP) is an ETF that invests in private equity asset management companies. —CNBC’s Jesse Pond contributed to this report.
ABOUT US
Our news website delivers comprehensive coverage on US news, economy, politics, and world events, ensuring you stay informed on the latest developments. We provide timely and accurate news to keep you updated on the most important stories. Stay connected with us for in-depth analysis and breaking news from around the globe.
Contact us: contact@realtimeheadlines.com
© Real Times Headlines - 2024 | All Rights Reserved