Wealth Managers look to alternative investments to fill portfolio gap as traditional investments struggle in low interest rate world

FT Adviser.com, the FT’s digital news platform for financial services practitioners, has published special reports this week looking at the increasing appetite of investors and their advisors for alternative assets to bolster portfolios as “Traditional assets can no longer be relied upon to behave properly”.

The current poor performance of previous cornerstone investments such as Government bonds is deeply worrying. A report on Investing in Alternatives published this month, states that nearly a third of which are reported as ‘locking in a capital loss for investors who hold to maturity … with yield on many government bonds below the current level of inflation in their country and far beneath central bank inflation targets.’ Without the ability to preserve capital value and provide portfolio stability, investors need to look elsewhere to offset equity risk.

Karim Leguel, EMEA Head of Hedge Fund Solutions, JP Morgan Asset Managers, states that ‘Investors are essentially striving for a balance – exposure that distances them from market risks, but can still offer the growth to meet long-term financial goals given that we remain in a low-return world of mediocre economic momentum and rock-bottom interest rates’.

For clarity on what qualifies as alternative investments, the report looks to the definition in Sarasin & Partners ‘Compendium of Investment’ published in January 2016, which includes ‘collectibles’ such as fine wine in its list along with commodities, hedge funds, private equity, infrastructure and agriculture.

Willem van Dommelen, Head of multi-asset systematic strategies at NN Investment Partners, comments on the increasing investor demand for these assets; “You need to balance your investments as well as possible and in general terms adding alternatives that are uncorrelated is something that you should do at all times, but especially if you are less certain about the markets.”

Mariana Enevoldsen, director at Heritage International Fund Managers notes “I think alternatives have produced good returns for investors in the climate of low interest rates. And as [rates] have continued to drop we think there will be more demand for alternative investments.”

Strengthening investment portfolios with diversification into alternative assets, and in Vin-X’s case, fine wine, has always been our consistent message to all investors and ultimately one of the key reasons I founded Vin-X. I believe that assets like fine wine have a valuable role to play in shoring up long-term, stable growth in value. Alternative assets’ performance has been proven to be not directly correlated to that of financial markets and is generally resistant to the negative effects of inflation. Our view is that every investor should hold a case of fine wine in their portfolio, and the current market conditions illustrate the benefits very clearly, with the Liv-ex 50 index growing nearly 20 per cent since the start of 2016. For more information on investing in fine wine contact the Vin-X team on 0203 384 2262.

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