Offsetting Volatility Via Alternative Investments

The repercussions of the events in 2020 are expected to last for years. Between the Covid-19 pandemic and the US elections, what Daniel Carrigan, Associate VP of Nasdaq, described as a “volatile”[i] year is an understatement. A burgeoning bear market was evident following the first drop in March 2020. By March 23, 2020, the S&P 500 fell 34% to a low of 2,237.40, causing turmoil. In 2021, the GameStop saga ignited panic among hedge fund managers, while the price of Bitcoin spiked to record highs.

Navigating a Volatile Market

Market volatility as defined by Genève Invest is “a concept that explains the level of uncertainty associated with the stock and bond market based on changes in the value of securities.”[ii]

The impact of volatility on investors depends on their reactions to market fluctuations. When a market downturn results in mark-to-market losses, investors who panic and sell assets will realize their losses immediately. Those who are patient tend to recover their losses whenever the market bounces back. Others who took advantage of the downturn to buy cheap assets will profit when the market rebounds.

Navigating a volatile market requires expert knowledge in selecting sustainable investments. The financial experts at The Family Office have a proven track record of selecting investments that weather volatility over the long term while addressing the unique needs of each client.

Volatility could also be an opportunity to acquire assets at a lower price. To select the right volatile asset and avoid panic, prudent investment behavior and the advice of a knowledgeable and trustworthy financial advisor are key to the preservation and growth of your investment portfolio in all market cycles.

Alternatives Prevail in Volatility

BlackRock defines alternative investments as “a powerful tool that helps investors achieve greater diversification, dampen volatility and boost returns.”[iii] “Alternative investments” is a loose term that covers a wide variety of illiquid tangible assets including precious metals, art, antiques, coins, stamps, etc. Our focus is on alternative investments that constitute financial assets, being mainly:

- Liquid alternatives, such as mutual funds and exchange traded funds,

- Hedge funds,

- Private equity, such as investments in private companies or buyouts of public companies,

- Illiquid credit or non-core credit, and

- Real assets, such as real estate and infrastructure

Alternatives are a great option for diversification during volatile markets. Since alternatives are not publicly traded, they do not fluctuate as frequently as stocks and therefore shield investors from volatility. However, they take much longer to sell at the right price. For example, the price of a Rembrandt painting will not be affected by dips in the energy sector, but it cannot be sold for its full value on short notice.

Since 2004, The Family Office has been building bespoke diversified alternative investment portfolios that preserve and grow the wealth of the most influential in the region by capitalizing on market volatility.

Learn more about our investment philosophy

[i] https://www.nasdaq.com/articles/2020%3A-a-year-of-market-volatility-introducing-the-nasdaq-100r-volatility-index%3A-volqr-2020

[ii] https://www.geneveinvest.com/market-volatility/

[iii] https://www.blackrock.com/americas-offshore/en/resources/education/alternative-investments-education-center/what-are-alternative-investments