Top pros give their tips on trading alternatives in volatile market
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CNBC received tips from top pros on how to invest in alternative markets as stocks continue to fluctuate and indexes keep losing weeks after weeks. Tapan Daatta, Aon head of asset allocation, stated in an email that stock markets are on the verge of a new regime with higher volatility but lower returns. “This is regardless of how the current market cycle ends — whether into a full recessionary bear market slump that could be in the 30-50% range, or whether markets find their footing soon after the near 20% fall already seen,” Datta added. Aon chose gold as an option, “largely because it serves as a market-hedge given its well-established ability to outperform even in weak markets,” Datta said. Investors view gold traditionally as a means to protect inflation. However, the nonpartisan Congressional Budget Office said Wednesday it expected to maintain well above the Federal Reserve’s 2% goal this year. The rise in commodity prices is an indicator of inflation. They have increased due to events such as Russia’s invasion Ukraine. Datta believes that commodities are generally “risky”, but other experts support them. Jean-Paul Jaegers of Barclays Wealth Management and Investments is the head for asset allocation and called commodities “sufficiently special.” He told CNBC via email that depending on your risk tolerance, we have between 8 and 13% in commodities in multi-asset portfolios (13 percent for medium risk portfolios) Morgan Stanley claims that drug and biotech sales are resilient to recessions. The firm has revealed its top picks Morgan Stanley. Joost Van Leenders, senior investment strategist at Kempen Capital Management said that the company had an over-reliance on commodities and recommended other alternative options such as infrastructure, land or floating-rate debt instruments. The interest rates on floating-rate bonds can be compared to that of the U.S. Treasury notes. Van Leenders mentioned infrastructure as an inflation-hedging asset. Datta spoke of inflation-linked bonds. “The importance and relevance of these alternative assets are rising as we enter a new market environment today. So this is a great time to assess their role, and determine if the alternative asset portfolio suits the task at hand.” He said that traditional portfolios often have 60% stocks and 40% bond, but this is “in some difficulties.” He suggested that inflation-linked bonds might be a good option. Datta stated that the UK’s inflation-linked market is very costly, however, global markets such as the US TIPS and French OAT markets, along with a handful of other inflation-linked bonds, could help to create more direct inflation hedge portfolios. TIPS is a term that refers to Treasury inflation-protected securities, issued by U.S. governments. OATs in France are public bonds open to all investors. Jaegers also supports inflation-linked bonds. “We see a clear role for Alternatives which – for our clientele and liquidity requirement – is predominantly Commodities and Absolute Return,” he said. We reviewed portfolios in 2020 to assess inflation sensitivities and potential risks from an increase in interest rates. According to him, inflation linked bonds were added at the cost of traditional bonds. Jaegers warned portfolio reviewers not to concentrate on the performance of any one security or item. He stated that if you only focus on realised returns by definition there will be winners as well as ‘below average’ portfolios. Diversification is important, Jaegers added: “In most cases, a carefully selected portfolio of approximately 8 to 10 assets will capture nearly all diversification – after which it will become a challenge to find additional unique exposures.” Thomas Franck from CNBC contributed to this article.
Istanbul counts gold bars
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CNBC received tips from top pros on how to invest in alternative ways, as stocks markets remain volatile and indexes have been losing streaks. week after week.
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