According to the Chartered Alternative Investment Analyst Association, assets in alternatives have grown to almost $16 trillion, yet alternatives haven’t been uniformly utilized across all investors’ portfolios, despite their potential benefits.
As we head into 2021, we at Yieldstreet remain steadfast in our desire to expand access to alternatives and have identified the following top 10 trends in alternatives we feel can deliver unique opportunities to investors.
1. Reconsider the 60/40 Portfolio
Historically, investors have relied on typical portfolio allocations of 60% in equities and 40% in bonds, in the effort to balance their portfolios between growth and protection. Looking forward, the traditional 60/40 may no longer provide the benefits of the past. Equity markets are trading at, or near, some of their highest valuations and have become increasingly more volatile with large sudden swings. This is all while the 10-year United States Treasury rate is at, or near, its lowest rate; becoming increasingly more correlated to equities than ever before, suggesting its benefit of being a counterbalance to equity risk may be diminishing.
This is where alternatives come into play, which offer returns typically uncorrelated to equities and bonds and can help mitigate risk in portfolios. In addition, private markets such as private debt and equity may offer attractive returns in excess of 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 have come in lower than expected in 2020 and surprisingly lower quality consumer borrowers have neen servicing their debts while performing in-line with higher quality consumer borrowers. A large driver of this was the reduction in discretionary spending alternatives, such as travel, dining out, sporting events, and other outside-
the-home entertainment options. With COVID19 likely to continue to reduce the amount of discretionary spending by consumers until the spring and assuming a positive distribution effort for vaccines, consumers may continue to prioritize debt servicing and reduction payments.
Though details are uncertain, additional fiscal stimulus remains on the horizon. Depending on the final legislation, a restart of the federal unemployment insurance program along with any direct payments to individuals, would further benefit consumers.
3. A Travel Comeback Spurring Commercial Real Estate
We believe hotels will return in full force, or at least those in attractive locations that have maintained a level of quality. The market will be bifurcated between winners and losers with those in less desirable locations and those with sub-standard quality to likely be challenged as demand is no longer expected to outstrip supply, as it did to support lower end hotels prior to the pandemic.
The central tenets to travel remain intact despite a hiatus. We anticipate that the desire to travel and the demand for vacations will likely bounce back, as well as an increase in business travel.
4. A New Generation of Art Buyers
Though the number of lots sold and total sales decreased during the first seven months of the year, the art market showed impressive resiliency in 2020 with the SMM All Art Index posting a 1.6% increase between 2019 and 2020—supported by a 2.3% increase in the number of bidders per auction. Interestingly, the underlying drivers of the increase in bidders and average fair market values tells a story of how the demographics and technology of the art market are rapidly evolving.
The first driver of change is the increase in bidders from the millennial generation, which jumped over 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 bidding, which saw sales totalling over $400M during the first half of 2020 (a quadrupling of online sales were generated during the first half of 2019 that achieved a mer $91M in sales). While much of the shift to online sales was due to the restrictions on public gatherings due to COVID19, it’s likely that the adoption of this new medium will continue to take hold and drive further growth in bidders.