Inflation is on the rise.
It’s just one reason to up your investment game and diversify your portfolio. For the first time in thirty years, U.S. consumer prices increased by an annual rate of 6.2%, while the core rate (excluding food and energy) rose by 4.6%. Other major economies also feel the pressure amid global supply shortages, increased consumption, and rising energy costs.
Inflation in China doubled over the past year, while Germany saw a 0.4% hike from September to October. The Bank of England also predicts a 5% rise by next Spring.
Politicians argue these increases are “transitory,” owing to the unprecedented events of the past two years.
But not everyone is convinced.
Navigating the ever-changing (and uncertain) economic landscape requires due diligence, an effective investment strategy, and a touch of ingenuity.
According to JP Morgan’s Long-Term Capital Market Assumptions 2022 Report:
- Global economic recovery has gained momentum.
- Rising policy rates are expected, along with slowed nominal growth, which may negatively affect returns for cash and many developed market government bonds.
- Equity returns are stable.
- Alternative assets demonstrate the ability to harvest illiquidity risk premia and robust alpha trends, supporting returns relative to public market assets.
- Returns are constrained, with low expectations in public markets.
As an investor, you must be willing to expand opportunity considerations and harness novel sources of risk premia—even if it means looking further afield. Paired with active participation in investment decision-making, you can seek out sources of alpha and generate a profitable, efficient, and robust portfolio.
Current Climate and 2022 Investment Trends
No one knows when inflation will go on the decline again, but it’s just one factor affecting the investment landscape. Fiscal policy changes and choices, big tech stock dominance, market sentiment, climate change, and post-pandemic economic growth are all factors to consider in 2022. It’s not all doom and gloom, though. The IMF World Economic Outlook projects the global economy to grow by 5.9% in 2021 and 4.9% in 2022.
Meanwhile, emerging markets like:
- Hemp and CBD
- Cloud computing
- Immersive technology
- Data science and analytics
are already setting the pace.
Meanwhile, countries like Belgium are paving the way in groundbreaking industries like biotech, sustainability, clean tech, and fintech. This kind of trailblazing means fertile ground for unique business investment opportunities.
Five Asset Types With a Twist To Diversify Your Portfolio
Portfolio diversification has always been crucial for any investment strategy. But a holistic approach is even more important in the current economic climate. The point of portfolio diversification with optimal correlation is to offset investment risks. Protecting your long-term investments is paramount whether you’re into bonds, stocks, REITs, commodities, equities, derivatives, or cash and cash equivalents. But who says you can’t do that while garnering value for your business, investment outcomes, or other business interests at the same time? Here are five unique asset types that could just be what you’re looking for:
1. Level the playing field
You don’t need to be a sports fan to appreciate how sports can enhance and diversify your investment portfolio. You can acquire “fractional ownership” of a team by buying shares in its corporate parent companies. Stocks can increase in value, but they can also lose value. They may pay dividends, but consistency isn’t guaranteed.
Ultimately, it’s all about calculated risk.
Exchange-Traded Funds are another option. They’re considered low-risk, low cost, and ideal for portfolio diversification. On the downside, dividend yields are generally lower than stocks.
ETFs with sports team exposure via company investments include:
- FXD: The First Trust Consumer Discretionary AlphaDEX Fund
- PBS: The Invesco Trust Dynamic Media Portfolio
- PEJ: The Invesco Trust Dynamic Leisure and Entertainment Portfolio
The sports industry is seeing significant pricing disruptions due to COVID-19, particularly in European sports. But other regions and sectors like e-sports are also affected. Teams are incentivized to raise minority equity to offset income reduction due to the pandemic. Leagues and events are attracting investment, too. Hedge funds, private equity groups, and alternative asset investors look to the sports sector for profitable returns and diversification. Investing in sports, whether major or minor leagues or local teams, has unique advantages. Brand loyalty (fans), high consumer demand (revenue drivers), and a lack of competition are all beneficial. Conversely, the cons include an elastic demand to attend sports events and increased risk with teams and athletes always in the public’s eye.
2. Off-market real estate takes off
PWC’s Emerging Trends in Real Estate 2022 Report says that the real estate industry recovered from the pandemic in record time. Still, the sector has changed forever as the world adjusts to the new normal. Off-market real estate allows you to buy or invest in properties that fit your criteria while meeting your investment needs. Whether a hotel chain, shopping mall, or warehouse, you can negotiate the best deal without hiked-up prices, time limitations, and other fierce competition. The transaction is also typically quicker, smoother, and more convenient compared to traditional on-market processes. You may need to pay a premium, though. With off-market properties, limited options could be a potential drawback, which could affect your investment goals.
3. SFRs aren’t far-fetched
According to Forbes, the single-family rental industry is set to outpace hospitality, retail multifamily, office, and storage and growth in 2022. A Walker and Dunlop Report estimates the SFR industry’s value at $3.4 trillion, while the multifamily market is valued at around $3.5 trillion. Small-scale or individual investors dominate the SFR sector, but demand has institutional investment capital growing.
Meanwhile, the multifamily sector has embraced investment technology like:
- 3D mapping
- Data accessibility
- Automation services
- Accounting software
- Smart home technology
- Due diligence scoping tools
Despite its explosive growth, the SFR sector lags behind in technology. This means more investment opportunities, not only in single-family rental assets but the innovative tech that is already becoming the standard. There’s an element of urgency, though, as institutional investors come flocking in.
4. Start up your startup investment
Multifaceted innovations in 5G, Artificial Intelligence (AI), and Internet of Things (IoT) represent massive potential for investors. These emerging industries signify a fundamental shift in existing business models. Paired with climate change concerns and global leaders pushing for sustainability, the opportunities are boundless. That doesn’t necessarily mean it’s easy to find a suitable investment opportunity that aligns with your goals. Due diligence is essential, along with expert consultation. These kinds of assets have other unique perks, too. Foreign non-residents can invest in or purchase hi-tech startups or companies in countries that welcome innovation, like Belgium. As a leader in sectors like biotech, fintech, and cleantech with a focus on sustainability, research, and development, Belgium is ideal for startup investments. But it has other advantages, too.
The country’s business residency program has some significant benefits, including:
- Family residency
- Access to EU countries and Schengen zone regions
- The opportunity to obtain citizenship
Not only will you have access to a world-class economy, workforce, and infrastructure, you can also benefit from R&D grants, labor cost deductions, tax credits, and more. Read more about it here.
5. Investors Are Flocking to Blockchain Tech
When you think of blockchain technology, cryptocurrency comes to mind. But it has countless other applications. Ongoing development and widespread adoption have spurred on the blockchain tech industry, and investors are noticing. According to a Deloitte survey, 76% of executives expect digital assets to become a robust alternative to fiat currencies (for global finance) in 5–10 years. Blockchain tech has brought about groundbreaking innovation to industries like healthcare, finance, data privacy, cybersecurity, and even supply chains.
You can enhance your investment portfolio by:
- Purchasing shares in blockchain tech companies
- Buying cryptocurrencies like Bitcoin or Ethereum
- Buying EFTs with exposure to blockchain
- Purchasing shares of a cryptocurrency trust
- Participating in an Initial Coin Offering (ICO)
Blockchain technology is still relatively new, so it’ll take some time to become mainstream. Digital assets like cryptocurrencies can also be highly volatile. If you choose to invest in this kind of asset, do your research and remember: If it’s too good to be true, it probably is.
Portfolio Diversification = Investment protection
(if you do it right)
You should diversify your portfolio to offset the risk of your existing investments. While nuanced, striking the right balance between correlating assets can mitigate inherent risks and bring profitable returns. You can even open new doors with foreign business and investments. Whether you’re ready to buy a minor league sports team, secure an off-market property deal, or invest in SFRs, startups, or blockchain tech, due diligence and active, informed decision-making are crucial.
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Sources: JP Morgan, IMF, Bloomberg, Forbes, Investopedia, Walker and Dunlop