Stock Market Weakness Is Making Alternative Investments More Attractive To Both Institutional And Retail Investors

Kevin Vandenboss

April 7, 2022 at 2:45 PM·3 min read

This week’s stock market losses have come as little surprise to most investors since pressure on the economy has been mounting for quite some time. Details in the March 15-16 Fed meeting minutes that was released Wednesday solidified what many expected; the Federal Reserve winding down its $9 trillion balance sheet and aggressively increasing interest rates.

The Nasdaq Composite is down nearly 4% for the week, falling to its lowest level since March 21. Meanwhile, the S&P 500 is down over 2% this week, and the Dow Jones Industrial Average dropped 400 points.

Several institutional investors have already been allocating larger chunks of their portfolios to alternative assets. According to Financial Times, over a dozen investment groups, including BlackRock, Invesco and PGIM, reported managing at least $100 billion in alternative assets at the end of last year, up from only nine groups five years ago.

The traditional 60/40 (stock/bond) portfolio has been the benchmark for most financial advisors and individual investors for decades, but a lot has changed since this standard was introduced almost 70 years ago.

A more modern approach that’s often suggested is a portfolio with roughly one-third being allocated to alternative investments. J.P. Morgan Asset Management’s “Guide to Alternatives” shows that allocating just 30% to alternatives can substantially increase annual returns, while strengthening portfolio stability and lowering risk.

The problem has historically been that alternative assets were unavailable to most individual investors. Thanks to new rules under the JOBS Act, retail investors have not only gained access to alternative investments, but now have a variety of options to choose from.

One alternative investment gaining the most attention is real estate. Two of the most popular property types among investors have been multifamily and single-family rentals. This is partially because a greater number of households are becoming renters instead of homeowners.

Private equity firms are developing and acquiring a growing number of apartment buildings throughout the United States, particularly in sunbelt states like Arizona, Texas and Florida. Meanwhile, institutional investors are building multi billion-dollar portfolios of single-family rentals all over the country.

Individual investors are also gaining more access to real estate through multiple crowdfunding platforms. CrowdStreet has funded over $3 billion across 618 commercial real estate investment offerings from accredited investors, resulting in an average 18.5% internal rate of return (IRR) on realized investments.

A group of popular tech billionaires, including Jeff Bezos and Marc Benioff, backed a real estate crowdfunding startup last year, which allows non-accredited investors to buy shares of individual rental properties with as little as $100. The company, Arrived Homes, has since funded 88 properties with approximately $35 million in property value. The annualized dividend range for 2021 was 5.1% to 7.2%, and investors will realize any equity gains when the properties are sold.

The collectibles sector is growing at a rapid pace since the introduction of fractional investments. Yahoo! Finance just launched the Total Collectable Index, which tracks the fractionalized collectables market of SEC-registered cultural assets. Pricing data has been tracked since July 2021 and the index is currently up nearly 17% since that time.

Fractional art investments have also been making waves in the global art market. Retail investors have contributed over $400 million to this market by purchasing shares of over 100 different contemporary paintings through the Masterworks platform, which has a net annualized track record of 15.8%.

Get the latest on alternative investments and new offerings through Benzinga Alternative Investments

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