According to the Chartered Alternative Investment Analyst Association, assets of alternatives have reached nearly $16 trillion, but alternatives have not been used evenly across investors’ portfolios, despite their potential benefits.
As we head into 2021, we at Yieldstreet remain committed to our desire to expand access to alternatives and have identified the following top 10 trends in alternatives that we believe can provide unique opportunities for investors .
1. Reconsider the 60/40 portfolio
Historically, investors have relied on typical portfolio allocations of 60% stocks and 40% bonds, in an effort to balance their portfolios between growth and protection. In the future, the traditional 60/40 may no longer offer the benefits of the past. Stock markets are trading at or near some of their highest valuations and have become increasingly volatile with sudden large swings. All this while the 10-year US Treasury rate is at or near its lowest level; becoming more correlated to equities than ever before, suggesting that its advantage as a counterweight to equity risk may be diminishing.
This is where alternatives come in, which offer generally uncorrelated returns to stocks and bonds and can help mitigate risk in portfolios. Additionally, private markets such as private debt and equities can offer attractive returns above public markets, due to their ability to provide excess returns from the limited liquidity they offer.
2. Healthy consumer sentiment
Despite the stressors resulting from the pandemic, consumers appear to be in a relatively stable to strong position. Consumer delinquencies and defaults were lower than expected in 2020 and, surprisingly, lower quality consumer borrowers failed to repay their debts while performing in line with higher quality consumer borrowers. A major driver of this shift has been the reduction in discretionary spending alternatives, such as travel, dining, sporting events, and other outside activities.
home entertainment options. With COVID19 likely to continue to reduce the amount of consumer discretionary spending well into the spring and assuming a positive distribution effort for vaccines, consumers may continue to prioritize debt service and reduction payments.
Although the details are uncertain, additional fiscal stimulus is on the horizon. According to the final legislation, a restart of the federal unemployment insurance program as well as any direct payments to individuals would benefit consumers more.
3. A return to travel boosting commercial real estate
We believe that hotels will come back in force, or at least those located in attractive locations that have maintained a level of quality. The market will be split between winners and losers, those in less desirable locations and those with sub-standard quality are likely to be challenged as demand is no longer expected to outstrip supply as it was. the case for supporting low-end hotels before the pandemic.
The central principles of travel remain intact despite an interruption. We expect the desire to travel and demand for vacations to likely rebound, along with an increase in business travel.
4. A new generation of art buyers
Although the number of lots sold and total sales declined in the first seven months of the year, the art market showed impressive resilience in 2020, with the SMM All Art Index posting an increase of 1.6% between 2019 and 2020, supported by a 2.3% increase in the number of bidders per auction. Interestingly, the underlying drivers of rising bidders and average fair market values tell how art market demographics and technology are rapidly changing.
The primary driver of change is the increase in millennial bidders, which jumped more than 22% from 2019 to 2020. Millennials in the United States represent the largest generational cohort. Their continued interest in the art market will likely continue to propel the market even higher. The second driver of change is the move to online auctions, which saw sales total over $400 million in the first half of 2020 (a quadrupling of online sales was generated in the first half of 2019, reaching a revenue of $91 million). While much of the shift to online sales was due to restrictions on public gatherings due to COVID19, it is likely that adoption of this new medium will continue to take hold and drive bidder growth.