In a world overflowing with mindless narratives and political polarisation, separating the signal from the noise in the markets can be challenging for anyone. The markets so far this year reminded us all that stock markets are risky. Even SPAC activity has not been this bad for the past five years.
Surely no one can correctly guess where market is heading, where uncertainties are the one thing that is certain.
Never mind that rising inflation is eating away our purchasing power as poor consumers. Oh, for all the coffee lovers out there, coffee, already noticeably imbued with the bitter taste of inflation, is likely to get even costlier, as farmers in world-leading coffee exporters face the fallout of
extreme weather.
Here’s why you shouldn’t be placing too much importance on where market is heading.
Sure, it is easy to get emotional especially if you are stuck in losses, given the significant negative returns across most asset classes in the first
half of the year and can no longer think rationally. On top of recession and inflation concerns, investors also had to deal with a deteriorating geopolitical environment.
Will there be another war somewhere? Who cares!
Where Market Is Heading?
As most of my long-term suffering readers know, I am a big advocate of alternative investments or absolute return strategies. Alternative investments have long been used as a tool in portfolio construction by large institutions, pensions, and endowments.
In recent years, many qualified individual investors have increased exposure to alternative investments to boost returns, generate income, and achieve long-term financial goals. Tech-enabled business models make it possible to serve customers on the lower end of the wealth spectrum.
One of the most attractive aspects of alternative investments is that they typically have a low correlation with equity and bond markets. When used as a complement to traditional investments, alternative investments are a valuable piece of a long-term investment portfolio.
Financial players of all sizes are aggressively pursuing product innovations to survive the competition. My strategic partnerships with trusted managers allow me to move fast with innovation.
Alternative Investments Are Important
From another perspective, alternative investment managers make the capital markets work better and more efficient which gives a meaning as to where the market is heading is not really important. They make them more liquid.
The local financial services industry was a simpler place more than 20 years ago and most investors were happily invested in plain vanilla equity and bond funds back then.
Indeed, one of the primary attractions of alternative investments for me when I began dealing with them in 1995 was that I knew the benefits of traditional diversification are overstated. Let me stress clearly that I am not against local investments. I am an enthusiastic local stock market
investor.
Shifting to another gear, many people assume that if somebody is really wealthy, he or she does not really have to worry about anything. In harsh reality, when you have more money, you have more problems or concerns. One of the concerns is the ability to preserve capital in the long-term.
Most people do not become wealthy by being irresponsible with their hard-earned money. Most of them worry about the downside risk which could affect their portfolio value especially during extreme market conditions. A proven alternative investments help investors to preserve their wealth while achieving growth over the long-term.
Many people mistakenly believe that alternative investments are all about making leveraged bets and getting big returns. In my line of work, some investors are looking to increase the amount of income in their asset allocation. The level of passive income varies greatly based on their wealth. A high income driven strategy is also a solid defence against rising inflation.
But Beware Of Scams
Where market is heading won’t mean a thing if you can’t differentiate financial scams.
Nobody likes to work and everybody loves high and guaranteed returns. If anyone knows how to produce extremely high returns all the time, he or she would already run a properly regulated investment vehicle and the money will find them. Please tell me something that I do not know because I am an “idiot”.
When you have more money, you will likely be the target of some unscrupulous people trying to sell something to you without having your best interests in mind. They can be anyone like your neighbors, relatives, colleagues and even your financial advisors. For these “greedy” sales people, while money cannot buy real happiness, there never seems to be quite enough.
I work with successful alternative investment managers or traders who are rational, analytical, able to control emotions, and performance oriented. They must have an edge and employ good money management by having rigid risk control rules.
I am always cautious about the specific investment ideas in my public articles due to internal compliance, but I will share with you in broad strokes about some of them in this limited space. It is a sample of different opportunities in the world of alternative investments especially for sophisticated investors and family offices, while some of you are still looking for a crash.
I talked about them in detail in a zoom meeting with investors not long ago. Grab that filtered water (cheaper than coffee) and be ready.
Stable Income Is Better Than Losing Money
Regular income despite not giving a damn about where market is heading? An alternative fixed income bond which is also available in the Islamic shariah version offers a solid infrastructure to mitigate the risk and pays a fixed coupon per month, paid quarterly in arrears to the investors. The generous income stream from the profits allow investors to support the lifestyle they desire.
Available in major currencies, the profits are generated from contract arbitrage trading. Contract arbitrage is the simultaneous purchase and sale of an asset to profit from the price differential between a seller and a buyer. The difference in price generates the profit.
Moving to another idea is an alternative global multi strategy fund which invests in global digital assets. The fund has performed very well at a much lesser volatility so far this year, given the sharp sell-offs in cryptocurrencies that hurt some of the high profile players with poor risk management and overleveraged.
Those crypto geniuses who blew up their trades knew what they were doing right?
Consider Digital Assets Too
The emerging digital assets industry has experienced a rollercoaster ride in recent years, with a lack of transparency and significant volatility discouraging some genuine investors from investing. Where the market is heading is not important, as the fund provides a simple, efficient solution for sophisticated investors to gain exposure to the digital assets space with low volatility and minimal exposure to systemic market risk.
On this note, while on a capital raising roadshow in Europe, the fund was well received by some of the largest wealth managers and investment banks. All wealth managers and institutions have plans for adding digital assets or funds to their offering. It is inevitable that sophisticated investors realise that evolution in Blockchain-based applications provides strong growth potential for the foreseeable future.
No Loss, So No Worries On Where Market Is Heading
Taking the world by storm, here is another gem. A global macro strategy fund with no losing years since its inception has continued to provide consistent positive returns amid the volatile market conditions in 2022 so far. The fund aims for consistent absolute returns over a medium-to-long
term period, by leveraging on the fund’s proprietary technology and the manager’s alpha skills in both good and bad times.
The fund invests in equities, fixed income, commodity, forex and interest rates.
To wrap up this article, as an investor, you can prepare your portfolio for uncertainty. Much like preparing for a road trip where you cannot control the traffic on the road, and having to deal with rude drivers and potholes.
Instead of trying to control or fix the problem, you can control how you prepare and react to it. Where market is heading? I don’t care!
About the Author
YH Wong has over two decades of experience in the financial services industry. His clients include high net worth investors and boutique institutions such as family offices and investment partnerships in the region. He is currently a senior partner with Satori Consultancy Ltd, a financial services company regulated by the Mauritian Financial Services Commission. He can be reached at [email protected].
