For many high-net-worth investors, hedge funds can be a valuable asset class that can help reduce overall portfolio risk and protect you against downturns. They can also be a good source of returns if you and your wealth manager choose the right opportunities.
That said, the hedge fund sector has been hampered in the years following The Great Recession by government intervention in the form of quantitative easing (QE) programs that were designed to stabilize the economy.
With the recent change in administration and today’s positive economic condition, however, we believe the government is finally backing away and allowing the markets to flow freely, which will once again allow hedge funds to prosper in a regulation-free environment.
The U.S. is in the midst of its ninth year of economic recovery from the 2007-2009 “Great Recession,” and we believe 2018 will continue this trend of economic prosperity. It’s been a remarkable stretch of expansion that has now more than doubled the average life of a typical recovery (which is 4 years, or 45 to 57 months).
The economy performed exceptionally during calendar year 2017—and not just in the U.S., but globally too, as most of the major and minor global economies were growing and recovering synchronously. The positive U.S. economic results in 2017 can be attributed to this global growth, as well as to fiscal stimulus initiated by the current presidential administration.
Immediately following the Great Recession, the U.S. was the first to begin a recovery, albeit at a pace well below that of historical recoveries. The recoveries of many non-US economies lagged behind that of the U.S. by three to four years. In our minds, this may be a reason why the U.S. recovery has been so anemic (ex.: think demand). Now that those economies are growing too, there’s hope the U.S. economy will continue to gain momentum and push this expansion even farther.
The interest rates on bonds (also known as bond yields) have been rising, making the asset class unattractive to many investors since, consequently, bond prices change inversely to rates. And recently, CNBC reported that “cash is back as an asset” because of rising bond yields.
While that might be a good suggestion for some investors, high-net-worth investors could potentially miss out on high-return opportunities if they follow that advice.
Don’t get us wrong, it’s great to hold some cash, but you want to make your money work for you as much as possible.
ICMC Believes the Current Weakness in The U.S. Equity Market Will Not Likely Develop Into a Bear Market, Yet!
By Ralph Heffelman and Leo Copanski
The equity markets have been on a rollercoaster ride in 2018, with the latest substantial dip having many wondering where we’re truly heading. Based on current trends, we believe the recent weakness is a market correction, and we don’t believe the U.S. equity market is entering bear market territory quite yet.
Historically equity Bear Markets (typically defined as declines of 20%, or more) precede economic recessions, which explains why they are generally regarded as a leading indicator. Another Important distinction of bear markets is that they seldom occur in the absence of an outlook for an impending recession.
In his famous “Two Rules of Investing”, the great Warren Buffett says:
- Rule #1 – Never Lose Money
- Rule #2 – Don’t Forget Rule #1
It sounds so simple and it makes a great soundbite, but it’s often easier said than done when it comes to your own investment portfolio.
Risk comes from many different places and takes many different forms. A few of the more common types of investing risk, include:
By Leo Copanski,
Assistant Portfolio Manager
and Investment Analyst, ICMC
Over the past 20 years, Amazon (NASDAQ: AMZN) has become a major disruptor in the retail and supply chain sectors, leading the consumer revolt away from brick-and-mortar stores to e-commerce. Today, the company is simply the go-to online resource for consumers’ needs and wants. So it comes as no surprise that some analysts are predicting uncharted growth for the retailer.
From a CNBC article earlier this month:
Following a devastating decline of nearly 50% suffered during the aptly named “Great Recession” (December 2007 through June 2009) the stock market, as measured by the S&P 500, has reached new all-time highs. The advance has become even more pronounced since the 2016 presidential election.
Given this factor alone, you’d think the world’s economies and our investment portfolios would be booming in a way that would match those milestones. But you’d be wrong.
Actually, the economic recovery following the recession has been rather subdued. Not bad, but not great either. And, apart from a recovery in housing, returns on investment grade bonds and other traditional investments have been lackluster as well for most people, at least compared to historical norms.
When people discuss alternative investments, they usually think of private equity, real estate, hedge funds and natural resources as the primary asset classes. But today we’ll look at an emerging alternative investment class—infrastructure.
The Financial Times defines infrastructure as “a basic physical structure needed for the effective operation of an economy. This can be for transport, such as roads or bridges, energy generation and delivery, water and waste management and communications to name a few.
“The funding of such projects provides investors with the asset and receipt of any income generated. The building and maintenance of a toll road is a classic example of an infrastructure investment. The investor can partial fund the project with, for example, a government and once finished will enjoy the asset and any income generated for a lease period. Infrastructure investments are similar to fixed interest securities in terms of return characteristics.”
For several years now, real estate has been one of the top-performing alternative asset classes thanks to historically low interest rates. And despite rates rising some this year, our belief, and the general industry consensus, is that real estate investments will remain a good option as long as rates don’t rise too far, too fast (which we don’t expect as of this writing).
A recent Reuters article quoted Prudential Global Investment Management (PGIM) as saying:
The outlook for real estate remains very strong, though investors will need to search to find attractive income streams and sources of growth that can deliver target returns, said the investment management arm of Prudential Financial Inc.
At the beginning of this year, there was hope that the natural resources market—particularly oil, would rebound. Oil was sitting around $54 per barrel in December, up from a low of $27 per barrel in January of 2016, and appeared poised for a rebound. But that rebound has yet to materialize.
In fact, the price of West Texas Intermediate Crude has experienced a rollercoaster ride this year, with a marked decline over the past month, down to $42 per barrel near the end of June.
A recent article on CNN Money noted this trend as well: