Bernstein Private Wealth Management Senior Investment Strategist Roosevelt Bowman joins Wealth! to discuss key alternative investments to diversify one’s portfolio amid a mixed market outlook.
“When you look at where the biggest opportunity is, it really does come down to the kind of fallout from the bank stress. So what I mean by that is, you look at all of what happened last year with banks coming under pressure, further concerns about increased regulatory pressures. What do they have to do with this? Shore up their balance sheets? They also probably have to offload assets that they don’t want to. That opens up a lot of opportunity for us, not being a bank, being able to look at these high-quality assets and buy them at steep discounts,” Bowman explains.
He stresses the importance of finding value in volatility, highlighting equity investments as an area that will provide long-term growth. Bowman adds that debt investments have lower volatility and are a great way to diversify your portfolio. “If you think about something like private credit, where it’s often floating rate debt, you’re appreciating. You’re going to enjoy appreciation in that strategy as interest rates move higher. That’s a nice offset to what I would say is your long-duration exposure in your equity portfolio, where you’re likely going to have a number of growth names that have a negative correlation to higher interest rates,” he explains.
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This post was written by Melanie Riehl
Video Transcript
Stocks are up so far this year with the S and P 500 seeing over 10% growth so far, but some investors feel uncertain about the future and therefore are now looking to some alternative investments.
And our next guest has some key insights into the world of alternative investments and is here with some tips for us.
Joining me now we’ve got Roosevelt Bowman who is the Bernstein Private Wealth Management Senior Investment strategist.
Great to see you.
Thanks for hopping home with us.
All right.
So first and foremost, what are the specific alternative investments that are seeing the most inflows right now?
Yeah.
Thank you for having me, Brad.
I think when you look at where the biggest opportunity is, it really does come down to the kind of fallout from the bank stress.
So, I mean by that is you look at all of what happened last year with banks coming under pressure, further concerns about increased regulatory pressures.
What do they have to do if they shore up their balance sheets?
They also probably have to offload assets that they don’t want to.
That opens up a lot of opportunity for us.
Not being a bank, being able to look at these high quality and buy them at steep discounts.
It’s really a matter of understanding the dislocation that was created by the sharp rise in interest rates in 2022 and kind of finding value in that volatility.
And the result is that again, we’re able to get these high quality assets at really attractive prices going forward.
And I would say mainly we’re focused in the credit space, but there’s certainly great opportunity in real estate equity and debt as well.
And so what type of liquidity are you seeing in those assets in some of the alternative investments uh uh that you’re looking across, it’s certainly lower liquidity to your point.
And I think that’s where that opportunity and the advantage in terms of the returns that are better than kind of liquid assets, stocks and bonds going forward, that’s the payoff for accepting that lower level of liquidity.
You know, you think about real estate, it’s a longer time frame, 6 to 8 years, private equity can be even longer.
When it comes to private debt, it can be a little bit shorter where you are seeing distributions a lot faster than maybe the equity investment.
So that certainly for investors, that is the trade off that you are allowing your capital to be tied up for a little bit longer in exchange for those returns that are above your normal stocks and bonds.
And so in comparison to the normal stocks and bonds.
Is there kind of a rule of thumb or uh uh a good barometer to really kind of pair it up against, to know what type of return on investment you should be getting in terms of making sure that your investment in, in an alternative is outpacing what the broader market might be seeing.
Absolutely.
It’s a fantastic question and I think there’s two ways of thinking about it.
It’s both the level of risk that you’re accepting in the liquid investment, but also return, right?
So if you think about an equity investment, private equity, it’s a similar profile in terms of what you’re looking at, you’re you’re thinking about and moving into an equity investment where you’re looking for long term growth.
So you’re looking for that premium over time, maybe three or 4% over the stock market.
I think when you look at debt investments where again your income levels may be similar, but your volatility is a lot lower or it’s providing you with true diversification compared to the rest of your portfolio.
So what I mean by that is if you think about something like private credit where it’s often floating rate debt, you’re appreciating, you’re gonna enjoy appreciation in that strategy as interest rates move higher, that’s a nice offset.
So what I would say is your long duration exposure in your equity portfolio where you’re likely going to have a number of growth names that have a negative correlation to higher interest rates.
They’re gonna come under pressure as we saw in 2022 private credit, having that positive correlation of higher interest rates is a nice true offset provides real diversification in the polio.
So I think it’s both a matter of getting returns that are above kind of stocks and bonds, but also lowering the volatility in your portfolio, creating greater efficiency for your overall asset allocation as you were mentioning, reeds earlier.
Of course, I mean the the first two words that are uh that make up the acronym are really real estate and real estate comes back to location, location, location as well.
Are there hot markets right now that you’re seeing reeds really pile into?
No, I don’t think for the most part, I would say the cold market certainly without a doubt is understanding real estate and office space continue to come under considerable pressure, you know, for from our view that continues, but there are really good opportunities when you think about from residential standpoint, multifamily homes in areas where population growth is moving above the national average, where per capita income growth is quite strong and it’s near other areas where you’re seeing good mi again, I think work from home has created uh made of certain cities really attractive where they weren’t before.
I mean the other part of it too, in terms of real estate, if you was logistics centers, a kind of interesting sector that would probably be called sleepy before is really interesting considering all of the all of the ecommerce that we’re now engaging in that kind of just in time delivery for a lot of what we’re buying online.
These logistics centers are becoming more and more important and more valuable from a real estate perspective.
