Alternative investments gaining ground

According to the financial market, more financial advisors indicated that alternative assets will “become as important or more important than traditional investments in the next five years.”

Additionally, baby boomer investors are scrambling to make up for retirement funds lost in traditional markets, and are demanding new solutions.

The aggressive central banks reaction to the financial crisis and public debt explosion could result in a less benign inflation environment. In our meeting we acknowledged that inflation at around 3% - 5% cannot be ruled out for the developed markets in the medium term. Negative real rates on core government bonds are the new normality. For this reason the primary objective of long-term investors should be protection of purchasing power. So, it is not surprising that some investors are moving towards real assets.

Some of these real assets, such as property investments, are already part of investor’s asset allocation, others, like infrastructure investments, are gaining ground in the current environment. Read more

Why Choose Hedge Funds as Investment

There are a variety of reasons to include hedge funds in a portfolio of otherwise traditional investments. The most cited reason to include them in any portfolio is their ability to reduce risk and add diversification.

We have mentioned before how many hedge funds claim absolute return mandates whereby returns are minimally correlated with the equity market. In such a case, hedge funds provide a great diversifier, particularly in times of increased market volatility and/or an outright bear market.

Risk Reduction
In any case, a hedge fund that provides consistent returns increases the level of portfolio stability when traditional investments are under-performing or, at most, are highly unpredictable. There are many hedge fund strategies that generate attractive returns with fixed-income-like volatility. The difference between a hedge fund and traditional fixed income, however, is that during times of low interest rates, fixed income may provide stable returns, but those are typically very low and may not even keep up with inflation.

Hedge funds, on the other hand, can use their more flexible mandates and creativity to generate bond-like returns that outpace inflation on a more consistent basis. The drawback, as previously mentioned, is that hedge funds have certain terms that limit liquidity and are highly opaque. That said, a carefully analyzed hedge fund can be a good way to reduce the risk of a portfolio, but we stress again the importance of proper due diligence. Read more

Hedge Funds Aggressively Sell Volatility, Treasuries and Ags

Hedge funds seem convinced that stock market is going through a lull period or at least that is what the level of negative bets on S&P 500′s volatility index shows.

Societe Generale’s Hedge Fund Watch notes that hedge funds have bet a large number of shorts on VOLATILITY S&P 500 (INDEXSP:.INX) futures. The total number of short contracts were up to 104,000 contracts, just below the December 2012 peak. This seems a very crowded bet considering the fact that markets are expected to once again slip into turmoil as Fed’s mid-September meeting takes place. After the recent lull in VIX, the index is once again looking up and has gone above to 13.5% now. Read more

Commodities Of The Future

One of the long-term trends facing our planet is the fact that our world population continues to grow at a rapid pace.

The United Nations predicts that the global population will increase by 11% leading up to the year 2020, and will jump by 20% by the time we hit 2030. This population growth will continue to place a greater strain on the limited supplies of the world's natural resources. Metals and other materials will be needed to build vital infrastructure. Vast amounts of energy resources are needed to provide electricity and to power western-style transportation. Tons of soft and agricultural commodities will be required to meet the world's growing middle-class demand for meat and other foods. As emerging and frontier markets continue to grow, commodities sector will continue even more important. Read more