The need for 50/30/20 portfolios is growing as investors look to diversify into alternatives as a hedge against the stock and bond markets, which are each raising red flags. A traditional balanced portfolio is 60% allocated to stocks and 40% allocated to bonds. Investors who choose to include alternative products in their portfolios typically allocate less than 5% of their assets to this category, according to Ayako Yoshioka, senior portfolio manager at Wealth Enhancement Group. . Strategies involving private equity and venture capital have higher barriers to entry and greater risk compared to traditional financial assets such as stocks, bonds, and cash. However, according to Bank of America, investor interest in the asset class is growing, with nearly three-quarters of respondents in a recent survey of independent financial advisors anticipating an increase in their allocation. It turned out that there was. Currently, around half of respondents allocate between 1% and 10% of their advised assets to alternatives, while 16% of those surveyed have no exposure. The surge in interest is no coincidence. Investors, concerned about the long-term prospects of expensive stock markets and rising bond yields, are turning to assets uncorrelated with either market. “Stocks have high valuations, and bonds have high interest rates and volatility. Bonds no longer provide the total return that they used to,” Yoshioka said. “So let me allocate a little bit, because instead of 60/40, it’s probably going to be (50/30/20),” she says, with 50% in stocks, 30% in bonds, and the remaining 20%. A clear alternative. Alternative cases There are two alternative cases. As for equities, investors are concerned that the market, which is in its third year of bull market, is unlikely to continue to provide annual returns above 20%, and upside reliance on the Magnificent Seven is likely to increase. It is unlikely to reward investors in the long run, he said. . In fact, the highly concentrated and overvalued nature of the market has led Goldman Sachs to issue a bearish long-term forecast, with the firm’s David Kostin predicting that the S&P 500’s annualized nominal total return next year will be just 3. We expect a return of only %. 10 years. On the fixed income side, investors are concerned about recent volatility in the bond market. For example, the benchmark 10-year Treasury yield briefly exceeded 4.3% this week, reflecting concerns about the government’s precarious fiscal position. Investors are worried that the massive federal spending measures proposed by both U.S. presidential candidates will cause interest rates to soar. “Consumers are not overleveraged. Companies are not overleveraged. I think that’s why everyone is paying attention to U.S. Treasuries,” Yoshioka said. Is the US overleveraged at the moment? In early October, billionaire hedge fund manager Paul Tudor Jones said he would avoid bonds altogether and invest instead in gold, Bitcoin and commodities. To be sure, other investors remain positive about the outlook for stocks and continue to see this asset class as a growth area, especially over the next three to five years, even if some short-term volatility remains possible. He says he is positive. “I think 50% is probably a little on the low side if you want to achieve the kind of growth that most investors are looking at, regardless of risk class.” Mark Marek, head of investments at Sievert He says: Still, investors argue that the asset class offers a better hedge against real risks than stocks and bonds. Yoshioka said, “The issue is not whether the S&P 500 will continue to be at the top.I think the issue is what kind of insurance we will take out if it does not continue to be at the top.” “You need some sort of diversification aspect in case you switch and have exposure somewhere. “Leadership is changing,” says Bank of America, as products and education for financial advisors increase the number of investors who put their money into alternative investments. The number is expected to “increase significantly.” An actively traded exchange-traded fund that invests in public and private credit proposed by State Street and Apollo Global Management could gain access to private markets if its strategy can overcome regulatory hurdles. There is a possibility that it will open. Companies expected to benefit from the increased interest in alternative investments include Blackstone, which Bank of America says has a “significant first-mover advantage,” as well as Apollo Global Management and Ares Management. , KKR & Co. and Carlyle Group could also benefit. One ETF that invests in private equity asset managers is the Invesco Global Listed Private Equity ETF (PSP). —CNBC’s Jesse Pound contributed to this report.
