Why manager selection is critical for alternative investors

The difference between the top and bottom performers can be significant

Time to read: 4 min

The recent (and long-awaited) return of market volatility has put alternatives back on the radar screen. But not only must investors familiarize themselves with the different types of alternatives that are available to them, they must also assess the skill level of the managers running these funds. Manager selection is a question that all investors face, of course, but it’s especially critical for investors in alternatives because these managers have greater freedom in their investment strategies. This freedom leads to a wide dispersion between the top-performing and below-average alt managers, and that dispersion is typically greater than what is found in traditional equity investments.

Comparing top and bottom managers

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What does the FERC ruling mean for MLP investing?

The recent ruling reverses a longstanding tax policy affecting MLPs’ interstate pipelines

Time to read: 2 min

On March 15, the Federal Energy Regulatory Commission (FERC) stated that it will no longer allow master limited partnerships (MLPs) to recover an income tax allowance when setting cost of service rates for their interstate natural gas and oil pipelines. This ruling reverses a longstanding (and long-debated) policy that was most recently affirmed by FERC in 2005. Although we expect the pipeline industry to appeal this ruling, the MLP market still dropped approximately 4.5% on March 15 in response to this announcement.1

To better understand the impact of the FERC ruling on the future of MLP investments, let’s explore the history of MLPs.

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Multi-alternative funds: Alts for one and one for alts

How multi-alternative funds may eliminate choice overload for investors

Time to read: 2 min

In my most recent blog, I described how choosing the appropriate alternative strategy (Real estate? Market neutral? Senior loans?) could become the biggest challenge for new investors in alternatives. This is one of the most common questions I receive here at Invesco, along with how to identify the best fund managers and how to select specific alt funds for a portfolio. This three-part dilemma speaks to the challenge of navigating the multi-faceted world of alternative investments.

I have written previously about the potential benefits that alternatives may deliver, be it boosting returns, reducing risk, providing diversification or delivering uniquely timed returns. However, it is much harder to select the specific investment that may best fulfill a given set of individual objectives. There are three reasons why:

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Which alternative strategy is right for you?

Connecting your investment objectives to specific alternative investments

Time to read: 4 min

In my previous blog, I made the case for why now might be the ideal time to invest in alternatives. Specifically, I suggested alternatives now make sense for three reasons:

  1. I don’t believe that the current high return/low risk environment for equities will last forever. Ultimately, I believe stocks will revert toward long-term historical averages (e.g., lower returns and higher risk).
  2. Over the past 20 years, a portfolio holding a diversified set of alternatives (48% stock/32% bond/20% alternatives) has tended to outperform a traditional 60% stock/40% bond portfolio by generating higher returns with lower volatility and lower maximum decline.1 See chart 1 in my previous blog — Is now the time to invest in alternatives?
  3. Alternatives have room to rise. One of the most common mistakes investors make in allocating to alternatives is investing “after the fact” — after the group has significantly increased in price. That hasn’t happened yet. Those who invest today could potentially benefit if the equity bull market ends and alternatives begin to outperform.

Given this backdrop, some investors are likely considering an investment in alternatives in 2018. The next step is very important — which alternatives are most appropriate considering individual return expectations, risk objectives and general market outlook?

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Is now the time to invest in alternatives?

The era of low rates and accommodative monetary policy may be coming to an end

Time to read: 4 min

I recently have been traveling around the country participating on a panel titled: “Alternatives: Time to Buy When Others Are Selling?” Spoiler alert — my answer to that question is a resounding “yes.” There are two reasons why.

First, looking back over the past 20 years (as shown in the chart1 below), a portfolio holding a diversified set of alternatives would have generated higher returns with lower volatility and a lower maximum decline when compared to a standard 60% stock/40% bond portfolio.

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Is now the time to reconsider REITs?

The Fed is raising rates. Find out why this environment may be right for REITs.

For eight years after the global financial crisis, income-seeking investors had a dilemma — yields on most traditional bonds had fallen precipitously. To obtain a yield anywhere close to pre-recession levels, one had to assume greater risk. Now, the tables have turned. With the Federal Reserve (Fed) hiking interest rates, there’s a new concern for investors. Given that bond prices tend to fall when yields rise, is there an income-generating investment that may also hold its value in this environment?

Are REITs right for rising rate environments?

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