Alternative investments 101
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[Alternative investments 101]
[Michael Sager, Vice-President, Multi-Asset & Currency, CIBC Asset Management]
The descriptor "alternatives" encompasses a broad mosaic of public and private market asset classes and strategies. If we start with asset classes, these range from highly liquid commodities and currencies to less liquid asset classes such as private equity and debt, real estate and infrastructure.
[Alternative asset classes Liquid assets:
- Commodities
- Currencies
- Private equity and debt
- Real estate
- Infrastructure ]
Turning to alternative strategies, these can provide the ability for investors to express the full range of investment insight by implementing both long and short positions in portfolios across and between various asset classes, rather than being constrained to long only positions in a traditional investment solution.
[Alternative strategies
Liquid strategies:- Multi-strategy/Absolute return
- Global macro
- Event-driven strategies
- Unconstrained bond strategies
- Equity market-neutral
- Long/short equity]
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[Why should investors and advisors consider using alternatives in a portfolio?]
Alternatives provide investors with exposure to a broader set of risks and returns than can be accessed through investments that rely only on traditional public equity and fixed income solutions. More breadth is synonymous with greater portfolio diverse allocation, which can help mitigate equity drawdown risk and smooth out the trajectory of returns.
Alternatives are complements, not substitutes.
[Alternatives are complements]
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Our challenge is to determine how best to combine all these opportunities into a more optimal portfolio. Each alternative offers something distinct and complimentary. Private equity offers higher expected returns relative to public equity, albeit at the cost of less liquidity.
[Private equity
- Offers higher expected returns relative to public equity
- At the cost of less liquidity]
Real estate and infrastructure offer the possibility of enhanced income as well as a greater ability to hedge inflation risks and multi-asset strategies can provide diversification benefits that help smooth the profile of long-term expected returns.
[Real estate & infrastructure
- Diversify interest rate and inflation risk
- Enhance expected income and returns]
- - Can also generate predictable income
- - Provide opportunity to hedge inflation risks]
- Unlock greater breadth of opportunities for investors
- Add unique risk/return characteristics, helping diversify traditional portfolios
- Complementary to core equity or fixed income allocations]
Investors with a focus on core fixed income solutions can look to alternatives as a way to diversify interest rate and inflation risk and to enhance expected income and returns.
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[Core fixed income:
And Multi-Strategy alternatives can provide these investors with a diversifying source of return without any significant increase in portfolio volatility.
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[Multi-strategy alternatives - Can provide a diversifying source of return without any significant increase in portfolio volatility]
Equity-centric investors may allocate to private equity or real estate to enhance expected returns.
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[Equity-centric investors - May allocate to private equity or real estate to enhance expected returns]
Real estate can also generate predictable income and provide these investors with another opportunity to hedge inflation risks.
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[Real estate:
And multi-asset strategies can be utilized to diversify macro growth risk, typically prevalent in an equity centric portfolio.
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[Multi-asset strategies - Can diversify macro growth risk
typically prevalent in an equity-centric portfolio]
[Why consider alternatives?
[The views expressed in this document are the views of CIBC Asset Management Inc. and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This document is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. All opinions and estimates expressed in this document are as of the date of publication unless otherwise indicated, and are subject to change.
CIBC Asset Management and the CIBC logo are trademarks of Canadian Imperial Bank of Commerce (CIBC), used under license. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc.]
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[CIBC Asset Management and the CIBC logo are trademarks of Canadian Imperial Bank of Commerce (CIBC), used under license.]
