nottheaverageactuary

Actuarial news and views from Cape Town and beyond

Forget traditional asset classes – alternative is where it’s at?

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The returns of traditional asset classes have become seemingly common knowledge: equities are expected to remain close to GDP, returns on cash are expected to generally exceed inflation and fixed-interest stocks provide their gross redemption yield.

As of late, however, there is evidence to suggest that insurers are moving away from these traditional asset classes and looking into alternatives such as exposure to both infrastructure and mortgage loans.

(read further at http://www.theactuary.com/news/2013/04/insurers-are-increasing-focus-on-new-asset-classes-says-ing-im/).

It is clear that this shift into “alternative” asset classes to diversify returns is happening across the market with recent research showing that four out of five institutional investors now invest in at least one alternative asset class. In addition to diversification, high absolute returns, reduced volatility, inflation hedging characteristics and reliable income streams that are seen in certain alternative classes are some of the reasons for why these assets are gaining popularity.

This article (http://www.valuewalk.com/2015/08/79-of-institutional-investors-globally-invest-in-at-least-one-alternative-asset-class/ ) discusses this trend of investing in alternative asset classes and the returns to be expected for these different classes. It reveals that investors not only have high expectations of returns for alternative asset classes but additionally have confidence that these expectations will be met.

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One thought on “Forget traditional asset classes – alternative is where it’s at?

  1. Thanks for the insight Ashleigh. So what the two links did not mention was the behaviour of individual investors with these alternative asset classes. I maybe going off tangent here, but I wonder if overall individual investor trends also follow those of institutional investors.

    I mean who wouldn’t want these benefits offered by alternative asset classes : ‘diversification, high absolute returns, reduced volatility, inflation hedging characteristics and reliable income streams’? Maybe it is the difficulty of making a quality of choice when it comes to choosing an alternative asset class. Maybe it is too large for individuals to take them on. Or maybe individual investor behaviours actually do mirror institutional behaviours?

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