To find the best-performing unconventional investments, Bloomberg searched its own indexes covering hedge funds, funds of funds, commodities and REITs. Bloomberg’s Rankings team also drew on outside indexes in search for the best-performing private-equity funds and collectibles, such as vintage cars, stamps, contemporary art and wine.
The best bets ranged from corn and silver futures, which returned 33.8 percent and 20.5 percent annualized over three years, to a Chateau Pavie Bordeaux and a 1957 Ferrari 250 Testarossa, which recently sold for $16.4 million.
Among the worst-performing alternatives were hedge funds, which returned 3.3 percent, and funds of hedge funds, which lost money overall. Most alternatives struggled to beat the Standard & Poor’s 500 Index, which returned 12.7 percent annualized over the three years ended on March 28 and was up more than 15 percent this year as of July 10.
James says that investing in alternatives makes sense even when they underperform.
No Correlation
“If you can put a bunch of money into these idiosyncratic investments, then you get a lot of diversification benefit because the returns are very uncorrelated” to the broader markets, he says, speaking from his office 44 floors above Park Avenue in Manhattan. “So even though you are putting a riskier asset in your portfolio, because it’s not correlated with everything else that you own, the portfolio volatility actually comes down.”
For investors in real estate and REITs, valuations fell further and faster than other assets and have in the past three years jumped higher than the S&P 500.
“If you wind the clock back to 2009, real estate had just been through a tremendous crash that helped bring down the global economy,” says Bob Rice, managing partner at New York- based merchant bank Tangent Capital Partners LLC and author of “The Alternative Answer” (HarperBusiness, 2013). “Things that are way down are going to come back. On top of that, central banks have given people a prevalence of cheap money to borrow and get back into alternatives such as real estate.”
Glimcher on Top
The return of consumer confidence has helped drive up REIT share prices by sending shoppers back to the stores. REITs that invest in shopping malls boasted the best performance for the three years ended on March 28, with an annualized return of 25.3 percent, according to data compiled by Bloomberg. Leading the list of best-performing mall investors was Michael Glimcher, whose Columbus, Ohio-based Glimcher Realty Trust gained 38 percent.