A Savvy Investors’ Guide to Alternative Investments

In the eyes of many institutional investors and high-net-worth individuals, investing in alternatives continued to emerge as an attractive investing option in 2015. This positive trend is expected to continue throughout 2016 and 2017, as the uncertain – possibly overvalued – public markets drive more and more investors to seek-out profitable returns in other markets.

The fact of the matter is that years of increasing volatility in public equities, and the shrinking yield on bonds, has caused battered investors to seriously consider introducing alternative assets to their portfolio, particularly as a means of diversifying their investment holdings. In 2015, wealthy investors were looking for real protection from market swings, and alternatives have stepped-up to meet their needs.

Among all the alternative investment opportunities available to investors this coming year, there are three investments that – based on historical performance, economic forecasts, and reviews – will deliver great performances for investors in 2016: Real Estate, Precious Metals, and Shipping Container investments.

Real Estate

The definition of what constitutes “investing in real estate” is expected to continue to expand in 2016. As investors seek to balance capital conservation with capital growth, it will become more difficult to classify investment-seekers as core, value-added, or opportunistic. Instead, 2016 will see the investment community searching out a wider spectrum of real estate offerings in both established and emerging markets.

The ever-evolving forces of globalization, technology and urbanization are constantly influencing one another. We can expect that this will require real estate investments to be evermore dynamic as they adapt to a networked world.

In 2016, “mixed use” investments that combine condominiums, offices, retail space are forecast to be strong in urban markets. Much of this will be driven by the growth of e-commerce and shifting consumer behaviors, that will encourage companies to make constant improvements to their supply chain. Because of this, the demand for industrial buildings and land that is suited for distribution centers will rise across the globe.

real estate looks doggone good in 2016

The next 24 months look doggone good for real estate. – Lending Officer, Major Financial Institution

Aside from new real estate buildings and developments, analysts expect significant investment into the redevelopment of older buildings. This will come about as companies begin to recognize the need for facility upgrades to accommodate the growing demands of tenants. After all, in business – like biology – adaptation is the key to survival and maintaining a competitive advantage.

Precious Metals

Analysts from across the globe are forecasting that gold prices will rebound in 2016, climbing to $1250 an ounce. As well, both silver and platinum are expected to see higher prices too, rising to $17.50 and $1100 respectively and giving investors compelling reasons to invest in precious metals.

If you’ve never owned gold stocks, this probably isn’t a bad time to add them. – William Bernstein, Author of “If You Can: How Millennials Can Get Rich Slowly.”

add gold investments 2016

The strong international demand for Silver, coupled with a drop in production in 2015 – 23 percent in Canada, 5 percent in the United States, and 4 percent each in Australia, Chile and Mexico, is very likely to have a major impact on the precious metal’s value in 2016. After all, basic economics suggest that when demand increases and the supply declines, prices will rise sharply.

Driving this strong demand for Silver is a new and major purchaser: India. To give an indication of the level of their demand, in August 2015 Indian investors imported $363 million worth of silver, 48% more than they did a year earlier in 2014. In September 2015, more than $433 million worth of silver was imported into the country, demonstrating India’s continued demand.

Shipping Containers

With the global financial crisis nearly a decade in the past, countries all over the world have persevered and – with the help of the container shipping industry – have delivered a strong recovery. Their economic growth has been fueled by making strategic investments in areas that facilitate global trade, like ports, terminals, and infrastructure, and also encourage domestic prosperity.

According to industry research, more than 90 percent of the world’s consumer cargo is delivered by the container shipping industry. Thus, investors can expect that any increase in a country’s GDP is going to mean an increase in the number of shipping containers needed to facilitate the demand. Regardless of whether they are imported or exported containers, the international container fleet must be prepared to facilitate economic growth.

Even in countries like the United States, where the economic recovery has been slow, government officials are seeing growth rates of close to three percent; and this is translating into rising demands at shipping ports and container terminals across the nation.

2016 container growth relative to gdp

[Over the longer term] our expectation is that container growth is going to grow relatively in line with GDP. – Moses Kopmar, Moody’s Analyst and Author of Moody’s Investors Service Report

In prospering nations like China – which will see growth rates of approximately seven percent – the need for shipping containers to meet the Asian giant’s ever-rising import and export demands can be expected to increase steadily year after year, as well. This constant economic growth must be funded by continuous investment into shipping containers, infrastructure, and port-side equipment.

Alternative Investment Outlook For 2016

Growing increasingly appealing since 2012, the allocation of alternative investments in portfolios is expected to continue to increase year-over-year. In fact, PriceWaterhouseCoopers has forecast that investor adoption of alternatives will grow approximately 10 percent per year, ultimately reaching a value of $13 trillion by 2020.

The most popular reason for this steady investor migration from traditional investments, like stocks and bonds, is that alternative investments have consistently proven that they can satisfy an investors need for diversification. Given that they tend to exhibit a much lower correlation and behave differently than traditional investments, thereby limiting the impact the sudden drop in value of one investment would have on the whole portfolio, alternatives investments – like real estate, shipping containers, gemstones, and precious metals – are commonly recommended to diversify a portfolio.

Investors need to be aware that historically, alternative investments have offered much better risk-adjusted returns than traditional asset classes. In doing so, they have consistently outperformed traditional investments, while experiencing lower volatility. The international investment community can expect that this trend of positive alternative investment returns will continue throughout 2016.

Investor Guidelines For Investing in Gemstones

Investors who purchase gemstones at wholesale prices – primarily by eliminating middlemen, or who can purchase in volume rather than individual stones, have a much better chance of earning a sizable return on their gemstone investment.

For less experienced investors, here are a few guidelines for investing in gemstones, as well as some valuable insight into how you can earn a modest profit with less associated risk:

  1. Purchase the very best stones you can find. Pay very close attention to the color, clarity, cut, and size.
  2. Seek out low to moderately priced gemstones. Why? Lower cost gems often appreciate more in value and are easier to liquidate.
  3. Never buy a gemstone encased in plastic. It important that you are able to examine a stone to determine its refractive index, specific gravity, and other characteristics. This is necessary to get a positive identification of the stone.
  4. Whenever possible, seek-out the advice of an experienced gemologist. Some jewelers are “academically trained” gemologists who can provide expert advice.
  5. Learn as much as you can about gemology. This will provide insight on how to identify and evaluate the natural and artificial gemstones you encounter. The more you learn, the more you earn.
  6. Be patient. Without the help of experienced gemstone investors, finding the best quality gemstones at a reasonable price is difficult. Locating willing buyers when you are ready to sell can be equally difficult.
  7. Take advantage of ideal opportunities when they arise. Many gemstones do not have steady supply and appear in the marketplace for only short periods of time. A great example of this is Alexandrite. A sizable deposit uncovered in Brazil a few years ago temporarily flooded the marketplace, but since that time supplies have been scarce.
  8. If you intend to use your gems in custom jewelry, employ an expert jeweler. Be sure the jewelry is well-made, and designed in such a way that it not only protect the stones, but also allows for the proper care of them.
  9. Take very special care of your gemstone investments. If your gems get damaged, seek-out the services of an experienced gem-cutter, and determine if they can be properly repaired.
  10. If investing through a gemstone investment firm, inquire as to whether they offer a buy-back guarantee.

With traditional investments creating growing concern for investors, many investment-seekers want investing opportunities that will help them regain control of their financial future. Given their proven reliability, it has been hard assets – like gemstones – that have emerged as an appealing alternative.

Alternatives Help Investors Regain Control of Financial Future

Generally speaking, an alternative investment is any investment opportunity that has not established a reputation for itself as a long-standing, traditional investment. Examples of well-established or “traditional” options include stocks, bonds, and, although investing in precious metals is quite new, gold is a long-standing investment too.

The trouble with many of the investments that occupy portfolios right now is that their performance is unduly influenced by the economic and political environment, which for the most part is dictated by bias (often self-serving) policy makers.

Economic progress, in capitalist society, means turmoil. – Joseph A. Schumpeter

economic progress turmoil

During the onset of the global financial crisis in 2008, it was the traditional investments identified above (stocks, bonds, etc.) that experienced the greatest drop in value. On the other hand, many of the leading alternative investments were unaffected by the poor performance of traditional assets, or saw limited losses followed much quicker recovery than their more established counterparts. That said, the investment community has taken notice of this impressive track record, and many have adjusted their portfolios to include more non-traditional options.

Albeit a majority of investing dollars remains in stocks, bonds, commodities, etc., investors feel the need to regain some control over the direction and performance of their financial future. In doing so, investors have discovered that placing financial resources into hard assets like investing in gemstones, precious metals, and/or real estate investments, provides a degree of protection from the effects of market volatility, political turmoil and global economic woes; three strong influences on the performance of traditional investments.

Too oft is transient pleasure the source of long woes. – Christoph Martin Wieland

pleasure and woes

Despite bouts of prosperity, Wall Street and other stock markets have repeatedly disappointed the investment community. And, with the constant threat of inflation, bonds do not appear to offer a better option for the world’s cautious investors. The main driving force behind this is caution is economic uncertainty. This combined with the fact that investors know that banks and governments represent their own interests, means investing opportunities that operate outside their sphere of influence are a much more favorable option.

With the world’s traditional investments still struggling to recover and perform, alternative investment brokers are demonstrating that their offerings are more appealing, especially given that they offer lower risk and have demonstrated that they can (and will continue to) outperform the established list of more traditional investments. That said, these are the opportunities that will allow investors to take back control of their investment portfolios, and release their financial future from the grips of greedy institutional investment firms.

New Alternatives Offer New Investing Challenges For Investors

By most any definition, alternative investments are simply anything different from traditional offerings. This includes non-traditional strategies like real estate investments, commodities, currencies, and collectibles.

When we look at the investment industry, we’ve generally had three asset classes to work with — equities, real estate and fixed income — and all three have won out over the past 35 years because we’ve had a declining interest rate environment. – Som Seif, President of Purpose Investments Inc.

In past years, the market’s most attractive alternative investments have been repeatedly applauded for their diversification benefits and consistent returns. Adding to their increasing appeal, many investors feel that they are a much more secure investment, given that they are uncorrelated to stocks and bonds.

Although it sounds like a wonderful investing strategy for most anyone, in the past many of these opportunities have been a secret investment that held a big price tag and, more often than not; were limited to institutional and/or accredited, high-net-worth investors. Thankfully this is changing.

Nowadays, savvy, confident investors are enjoying access to a new wave of more affordable alternative investments. This has been instrumental in encouraging investment-seekers to introduce alternatives to their portfolio, and to distance themselves from the volatility of the stock, bond, and currency markets.

In recent months I for one have been approached by several investment brokers, whose entire list of offerings is comprised of nothing but alternative investments. Their list of non-traditional opportunities range from commercial real estate and shipping container investments, to precious metal and gemstone investing. None of which I am particularly knowledgeable about. In fact, therein lies much of my apprehension about alternatives.

All things considered, if investors hope to discover where alternatives fit in their portfolio, they must either conduct their own in-depth research or rely upon the information provided to them by their investment brokers and/or advisers. In either case, I recommend that investment-seekers do as I have done, and educate themselves on:

  1. the investment provider,
  2. past and present market performance, and
  3. credible forecasts for the future.

Given that these new alternatives have presented new challenges for investors, the only way to profit from these new, highly profitable opportunities is to educate yourself, and make informed decisions based on established facts and figures.

For example, although the global shipping industry appears to be facing its share of challenges for the next couple of years, much of the world’s real estate market is doing well and gemstones have shown to retain (and steadily increase) their value. I’m still not sold on precious metals either. That will require further study.

All in all, my confidence in alternative investments is high. I see a lot of potential for great, low-risk returns in the coming years, and I have adopted a non-traditional investing strategy to reflect that.

U.S. Investors Use Indices for Real Estate Investment Insight

A variety of regularly published indices are used by investors for bench-marking, assessing tolerance for risk, and other investment measurement. When considering an investment in real estate for example, there are two indices that, based on actual property transactions, measure the average price appreciation for U.S. real estate; at the property level.

Both the Moody’s/RCA Commercial Property Price Index (CPPI) and the CoStar Commercial Repeat-Sales Index (CCRSI) are available for the aggregate U.S. commercial property market, as well as for important and influential market segments. Both index series are based on a version of the repeat-transactions methodology, popularized by Case and Shiller.

The CPPI and CCRSI measure the implied monthly change in market value for an investment property that has had “normal” levels of both economic depreciation and capital reinvestment. They do not measure income or total returns at the property level, nor do they measure returns to investors on property investments in which any debt is used.

Both the CPPI and the CCRSI are published monthly rather than quarterly, and both are based on actual transaction prices rather than appraisals. This means that both indices produce significantly more accurate measurements of movements in property values over time, when compared to appraisal-based indices, whether at the property level (such as the NCREIF Property Index) or at the fund level (such as the NCREIF ODCE Index, the PREA|IPD U.S. Quarterly Property Fund Index, or the Cambridge Associates Real Estate Index). In addition, both cover a significant amount of the commercial property market in the United States.

The U.S. housing market as a whole has improved dramatically over the past several years. In mid-2014, property prices vaulted to their highest level in more than five years, adding to signs of an improving real estate market recovery in the United States. With regards to residential real estate specifically, the median price of a new home increased a record 11.2 per cent in August 2014, to $256,000; the highest level since March 2007. When compared to August of 2013, the median sales price jumped 17 per cent, the largest rise since December 2004.

A Way to Exit The Stock Market And Earn up to 12 Per Cent

Even those who think the market offers long-term promise are less enthusiastic about its immediate future.

If pushed to say whether I think we’re on the cusp of a real correction, over 5 to 10 per cent, I’d say that I’m not sure; but the market doesn’t feel great. – Jenny Van Leeuwen Harrington of Gilman Hill Asset Management (Westport, Connecticut, U.S.A).

That said though, most investment advisers have expressed caution about trying and exit the stock market given that it is high now, and then reinvest later when it’s low. But, if history is any indication, many nervous retail investors will not heed their strong advice and instead will cash-in while the market is high and jump out. If you are one of those investors, here are some options to consider, if you’re looking places other than the stock market to invest your money:

Since 2005, a growing number of investors have been investing in alternatives, such as private equity like peer-to-peer lending, real estate investments, and investing in commodities. Over the past decade, many of these alternative investment offerings have established long histories of great returns and stability.

Seek-out the protection of market-neutral products. These investments are designed to earn a strong return whether the market rises or falls. This is one of the advantages when you invest in containers.

“Peer-to-peer” lending websites like Prosper.com and LendingClub.com match up investors with individual borrowers seeking lower interest rates. Peer lending industry experts say investors are getting returns that range from 5 to 12 per cent, and the returns don’t move with the stock market.

Be well aware though that, despite their appeal to savvy, confident investors, the experts recommend that alternative investment holdings should comprise no more than 7 per cent of your total investment portfolio, while money-lending should be limited to a maximum of 10 per cent.

UK Real Estate Investment Will Grow to £20 Billion by 2019

According to analysts’ forecasts, based on a survey of investors’ five-year views, investment in the UK’s real estate sector will grow to £20 billion (€25.5 billion); by 2019. Why the sudden interest in investment? Some say this 82% increase can be attributed to alternative investments becoming much more appealing and acceptable, to institutional investors.

The survey found that 90% of investors intend to increase their exposure to real estate investments, over the next five years. By how much? On average, respondents said they were looking to increase their allocation to alternative investments by 9%, over the same 5 year period.

“As we move towards 2019 and beyond, with what indicates to be an ever-increasing investor appetite, it’s likely many of these assets will break out of the alternatives bracket and become a more mainstream choice for investors.” – Mr. Chris Ireland, UK Chairman & Lead Director of Capital Markets at JLL

According to a report from Real Capital Analytics, Europe remains a major draw for North American and Asian capital. Canadian investors and their American counterparts continue to target European property for investment. In the United Kingdom alone, the U.S. dollar has dominated investment this year, with an estimated €8.3 billion invested in the first nine months of 2014. On the other hand, Asian investment in European property is still in its infancy. These figures demonstrate international investors’ commitment to UK real estate.

The higher investment returns, relative to conventional real estate investments, as well as greater expertise in investing in alternatives; will also drive investment volumes in the sector up. Sometimes referred to as “the beginning and end of adult life” (student housing and retirement homes), are regarded as potential growth sectors. Both of these investments, which have already attracted significant institutional capital, may very soon find themselves reclassified as mainstream investments.

Recent reports suggest that key points of interest for investors investing in real estate will be student housing, expected to increase 70%, as well as hotels and hospitality; with a 69% increase in investment.