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By Steve Glover, head of stockbroking, Canaccord Genuity Wealth Management Jersey
IN our last article, we reported that more and more savers are looking to move away from the poor returns they are achieving by holding cash on deposit or from investing in bonds. But the challenge is finding higher returns without taking on significantly more investment risk.
One option worth considering is investing in alternative asset classes – an increasingly important feature of any diversified income portfolio. This asset class can provide a stable, inflation-protected income stream and can also help to reduce overall portfolio volatility.
The term ‘alternative investments’ is used to describe investments that are neither equities nor bonds or cash. Historically, ‘alternatives’ tended to be associated with potentially high-risk vehicles, such as leveraged structured products, opaque hedge funds, and ‘passion investments’ like art, wine, coins and stamps.
Today, these sorts of high-risk options are unlikely to form part of a Canaccord Genuity Wealth Management portfolio.
However, we would invest in three sub-asset classes within the broad ‘alternative investments’ segment which are key to our successful income strategies: REITs, private equity and infrastructure.
All act as great diversifiers, as they are often less volatile and lowly (or in some
cases negatively) correlated with the broader equity market.
For our income-orientated clients, one solution that has worked well is in the form of specialist alternative assets, such as Investment Trusts. These invest in a wide variety of assets, ranging from renewable energy and infrastructure to commercial property and student accommodation, where yields of between 4.5% and 6% are typically achievable.
In addition, the net asset value of the fund can increase, although clearly this is not guaranteed. In turn, this can result in a rise in the value of the shares or an increase in the share price, such that when both the income and capital gains are taken into account, total returns typically can be around 10%.
If you would like to explore the world of alternatives, we would always suggest speaking to a professional adviser, as they are a fairly specialist area.
However, it is pleasing to know that there are options that could provide higher returns without taking on significantly more investment risk.
Look out for our article next month, when we will explore another option.
In the meantime, please don’t hesitate to contact us and find out more on 708090.
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