I’m curious if anyone has any ideas for alternative assets for retail investors? I have about as much equity exposure as I want. I already have a heavy exposure to Preferred Stock (PGF and PFF), which I love and intend to keep. I also have a LendingClub account (which has been great), but that is about all of the less traditional asset classes I have. Not looking for direct real estate, as I’ve already got a lot of equity in my condo.
I know there are commodity ETF products out there, but I’m bearish on many of those. If anyone has any ideas beyond what I mentioned, I’m all ears! Thanks
Ah, welcome to the world of liquid alternatives. What are you looking for? There are long/short funds, market neutral funds, multi-alternative funds that specialize in a variety of objectives (e.g. income, equity, etc), managed futures, arbitrage funds, M&A funds…
The hedge fund world has opened up to the retail investor. If you know where to look, you can get pretty much whatever you want.
Tell me your objectives and I’ll point you in the right direction.
Wouldn’t you get an edge shorting an ETF to get short exposure (actually shorting one, not going long a bear fund)… because the natural price decay will work in your favor? (Especially in the case of one of those levered exposure ETFs)
Thanks. I’m looking for something with (i) relatively low correlation with equity, (ii) has at least modest liquidity (most likely an ETF) and (iii) an expense ratio below 1% or close to it. Outside of that, I’m very open minded. My main goal with my portfolio now is I don’t want to be too long equities.
Managed futures interests me, as do multi-alternative funds focused on income. I’m a mere retail investor and am probably looking at just ETF’s, rather than direct hedge fund investments. Your suggestions prompted me to search for these and I actually found a few ETF’s that do these, which surprised me. Thank you for mentioning.
This is actually what prompted me to ask this question. I came across the PowerShares Buy-Write ETF that implements this strategy and it intrigued me and I’m giving it serious consideration. These are the types of strategies I’m trying to capture, or just pure alternatives.
I didn’t know that these were out there and I was curious if anyone knew of others. STL pointed me in a good direction, as I found some cool stuff that I’ll have to consider. If you or anyone knows of anything else, feel free to mention.
I’m not looking for levered short ETFs or anything like that. I’m not making short-term market calls (what those are designed for), but rather am looking to hold on to something for at least a year.
I’m very happy with LendingClub, but it requires a fair amount of legwork if you want the good stuff. The most attractive notes only last on the site for 45 seconds or so, and if you do the automated investing you’re picking up some less attractive stuff in my opinion but it still offers a nice alternative.
Yes! I’ve written about this and implemented it a few times. I would short both the long and short 3x ETFs (sector really didn’t matter).
Unfortunately it does work. It can work, and would work if you could indefinitely short both positions. But, leveraged ETFs are traded so frequently your short shares will get called away by your broker. If you have to cover at the wrong time, you’re in for some pretty bad losses.
Plus, the upside isn’t that great. I was tracking to make about 7% a year. Ain’t nobody got time for that.
If you want to collect time decay… just write iron condors. takes up less margin and highly unlikly it will get called away before expiration.
What I’m thinking is next time I’m feeling like I want to be short the VIX I’m going to short one of the long ETFs rather than go long the short VIX version. That is a short term trade and those guys decay like crazy!
^Not options. Talking about my broker forcing me to cover my short positions. I’ve tried it several times and never got beyond 3-5 weeks. Pretty much same theory though.
Yep, definitely going that way. People looking for a fixed income substitute mostly. I think a small allocation to a market neutral fund is okay. You should return about 3% over t-bills net of fees. Vangaurd has the cheapest one.
I wouldn’t get too hung up on the expense ratio though. It’s a rare occasion that expenses are actually over stated, but in the case of long/short and market neutral funds they are. Much of that fee goes to paying dividends back to the owner of the stocks the fund is short. Since there should be a decline in the price of the stock when the dividend gets paid, it evens out…in theory.
Using Lending Club automation or third party? LC sucks but you can automate your strategy with several third party guys. My primary market activities are hundred percent automated
Regarding alternative assets with low correlation with equities, I’ve recently considered being long USD vs. other developed currencies. I was looking at last twelve month correlations of USD vs other major currencies and the S&P ranging between -0.60 and +0.40 over the last decade.
I don’t really like fiat currencies but USD has some of the characteristics I’m looking for; I’m pretty long preferred stock and that has a tendency to perform quite poorly when markets are in crisis, while USD has done quite well in such periods. I know history isnt a predictor of the future but I like that diversification. I can also get behind a bullish value for USD going into a rate hike cycle vs. other economies years away from doing so, unlike gold that has good diversification characteristics but I think its going down long-term.
I like the trend-following managed futures stuff, too, though that is a bit pricey.
Thanks for everyone’s thoughts. If you’ve got other ideas feel free to shoot them out there.
