Advisers have had to adapt to the changing investment landscape.
Global stock market instability, ongoing China-US tensions, and Brexit has led investors to seek income elsewhere in alternative assets.
There are many different types of alternative assets, but they broadly fall into the following categories: commodities, specialist property, infrastructure and asset leasing.
Advisers have taken ‘on board’ their clients’ desire to incorporate alternatives into their portfolios, and this has been beneficial for both the client and the adviser.
Paul Rose, Rose Financial Planning says: “Alternatives have become more focused in the last few years. Things like aircraft leasing and different property vehicles have become more popular. I don’t see why they won’t continue to grow in popularity given the returns they have produced so far.”
Investors, will need to consider various things before adding alternatives to their portfolio, like liquidity, political and regulatory risk which can impact upon alternatives, according to Solomon Nevins, senior investment manager at Architas.
Nevins says: “The goal of adding alternatives to a portfolio can be to reduce volatility or to enhance returns. It really depends on the investors’ perspective but generally, the common aim is to improve diversification within a portfolio. Alongside this, investors will look to alternatives as a different source of income or a way to add inflation protection within their portfolio.”
Nick Davison, investment development manager, Midlands and the North East, Architas says: “Alternatives can be used by advisers to give them more diversification in their portfolio and at the same time give them some downside protection and reduce that maximum drawdown that clients just don’t like to see.”
Davison adds: “The problem for advisers is that they find it a difficult asset class to research. So, unlike looking at equity funds where you can review ratios, such as alpha and beta and Sharpe, there is much more due diligence to be carried out to find the right alternative asset fund. This has led many advisers to use absolute return, however, this is just one small asset class within alternatives.”
Stephen Conway managing director at Wade Financial and chartered financial planner (CFP) has been incorporating alternatives: “Over the last few years [we have been using alternative assets], to diversify our portfolio, we’ve used some of the multi-asset funds in order to increase the fund range and to get a reduction in the level of risk we’re taking for clients.”
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