When central banks finally start raising interest rates, that could put a quick end to the new property boom, says David Fann, chief executive officer of TorreyCove Capital Partners LLC, a La Jolla, California-based firm that advises investment managers.
“Real estate has been a huge beneficiary of quantitative easing,” he says, referring to the Federal Reserve program to keep interest rates low by buying mortgage securities and other bonds. “When interest rates begin to rise, that’s going to curtail the longer-term appeal of real estate investing.”
Hedging Losses
Hedge funds, once the quintessential alternative investment, have been disappointing investors for years. The poor performance of macro funds, which make bets on movements in the broad economy, has been a reason for hedge funds’ overall mediocre 3.3 percent return.
Fund-of-funds operators, who try to find the best performers, have done even worse: Those funds lost an annualized 3.8 percent over three years. More than 600 funds of funds, or 25 percent of the total, have gone out of business since 2007. And assets under management in hedge funds have declined 13 percent in that period.
Even as the hedge-fund universe has shrunk, pension funds and other institutional investors have moved their money into the biggest, most successful funds.
‘Index Effect’
“Hedge funds in aggregate are going to look more and more like the broader market as their asset base continues to grow,” says Carl Friedrich, chief investment officer at Woodbury, New York-based investment adviser Piermont Wealth Management Inc. “You get an S&P 500-like index effect.”
Hedge-fund investors smart enough to bet on a rebound in housing via mortgage-backed securities fared well. Those funds gained more than 20 percent annualized during the three-year period. And the best of them, Metacapital Mortgage Opportunities, run by Metacapital Management LP’s Deepak Narula, returned more than 30 percent.
Commodities investors found the best returns in their breakfast cereal bowl: corn. While overall commodities gained a paltry 3.1 percent, corn futures returned 33.8 percent in the three years, as the U.S. government raised the required ethanol content of gasoline. Also, rising incomes in emerging markets increased meat consumption and thus grain purchases to feed the livestock.