Asset classes that you might have missed

As businesses become more and more globalized, diversifying your equity holdings only based on geographic differences might not be enough. With so much volatility in the equity market these days, perhaps you might want to consider including some other asset classes into your portfolio.

 

Real estate funds:

  • Image captured from Canada Life
  •  “As an alternative asset class, which represents a third of the world’s wealth, real estate generally—and commercial real estate specifically—provides an inflation hedge and reliable cash flow that’s helped it earn a permanent position alongside traditional asset classes in sophisticated investment portfolios.” … “Where real estate differs from equities is that a higher proportion of the long-term return is derived from income and less from capital gain. With equities, it’s generally the reverse” Quoted from http://www.advisor.ca/investments/alternative-investments/seeking-yield-think-real-estate-56436
  • Some real estate funds are investing into equities of businesses that own or manage the property, while some would directly invested into the real estate property. I personally like the funds that directly invested into the property, so the performance would linked stronger to the real estate itself.  However, this fund might be less liquidated, as you all know, it’s harder to sell a property when times are bad.

 

Infrastructure funds:

Image linked from smi-online.co.uk
  • “A growing asset class: As populations grow and living standards rise around the world, the need for infrastructure such as roads, public transportation and electricity is increasing.
  • Steady income: Infrastructure assets are “long-life” assets, lasting 25 years or more. Larger up-front costs can be amortized over long periods, and assets can therefore provide sustainable, stable cash flows over longer periods.
  • Less cyclical returns: Many infrastructure assets are monopolies, and are therefore regulated. Regulation can often assure suppliers of price certainty. Furthermore, since infrastructure assets provide essential services, demand is often less susceptible to economic cycles.
  • Inflation protection: Many infrastructure suppliers, like power companies, negotiate contracts that adjust revenues to meet inflation, generating income that can keep pace with the cost of living.
  • Greater asset class diversification: Infrastructure investments can provide valuable diversification benefits due to their low correlation with equity and bond markets and other listed investments.” (Quoted from Mackenzie Investments)

 

Precious metals/ Gold bullion funds:

Image linked from theglobeandmail.com
  • Gold prices tends to be viewed as investments that would preserve value,  especially in times of trouble. (i.e.: uncertainties on a currency, investments.) Therefore, gold might be able served as a hedge to other traditional assets.  There are quite a number of precious metal funds that I have been following, they are mostly invested in businesses that are related to the gold industry. They could be businesses that produce or supply precious metals. One problem is that their return might not be totally correlated to gold price, as factors such as the management of the business would affect the performance. Therefore, these leads to the launch of a few Gold bullion funds that invest a large portion of its funding into gold bullion or gold certificates.
  • Click here to read more about gold investments

 

Bond funds:

  • Image linked from theglobeandmail.com

    In general, bonds tend to be considered as a more conservative investment relative to the stock of the same company. When investing in stocks, companies are not mandatory to payout dividend, however, they would still have to meet its debt obligation to the bondholders regardless of its performance. This would lead to a more steady flow of income.

 

 

 

Of course, you should consider your own risk tolerance and investment objectives before investing. Different types of risks such as currency risk, interest rate risk, default risk could be involved. You should always talk to your financial consultant before making any decision or CONTACT ME if you wish to obtain further investment details.

 

Disclaimer: The information on this site is provided for educational and information purposes only. You should not act or rely on any information on this site without seeking the advice of a professional advisor as appropriate. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The information provided on this site is intended for residents of Ontario only.

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