Esoteric assets such as hedge funds, commodities and infrastructure are increasingly becoming a fixture in wealth manager’s toolkit. What do they offer and are they here to stay?
Alternative investments are the Quality Street of the asset class universe: a whole heap of different things bundled together under one label, including a lot of stuff no one really wants.
This seemingly haphazard assortment of products is perhaps better defined as anything that isn’t an equity or a bond. From property to private equity, absolute return funds to gold ETFs – in fact, even music royalties have found their way into the mix in recent years.
Despite their idiosyncrasies, alternatives now play an important role in DFMs’ portfolio allocations, typically as a diversifier away from the noise of the mainstream. But average allocations have gone down recently.
So Asset Allocator decided to take a closer look at the ways in which allocators make use of such tools, because, well, what else would we do on a Wednesday morning.
First, it’s worth noting that the decision to even touch alternatives as part of MPS propositions varies by institution. Some allocators are more heavily placed here than others: for instance, 16 per cent of 7IM’s holdings are in alternatives and property, while on the other hand, Liontrust affords less than 1 per cent of its strategy here.
DFMs’ average exposure to the broad bucket of assets hovers around 11 per cent, and with this in mind we had a chat with some allocators to see what’s occurring on the ground.