Market
Memos from Howard Marks: The Impact of Debt
Investors are increasingly turning to alternative investments as a way to improve portfolio outcomes.
This shift towards alternatives is occurring for a number of reasons: the availability of new vehicles to access alternatives, greater recognition of their benefits, and perhaps most importantly, a rise in global equity/global bond correlations.
The traditional mix of public stocks and bonds has often failed to offer the resilience most investors would prefer. A potential solution to this diversification conundrum is to add alternatives to a portfolio.
Although “alternatives” means different things to different people, the standard definition is investing outside traditional stock, bond, and cash instruments. They can bring a range of benefits to a portfolio: enhanced risk-adjusted returns, income generation, risk mitigation, and inflation hedging.
We believe the four key alternative assets are real estate, infrastructure, private equity and private credit. Although there are many other alternatives, each with their own advantages, we believe these are the main alternatives investors may want to consider. Together they can strengthen portfolios and increase diversification.
Exposure to Alternatives May Provide Attractive Returns with Less Risk
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Past performance is not indicative of future results. For illustrative purposes only. Information does not represent returns of a fund. An investor cannot invest in an index. Global Equities represented by the MSCI World Index, Global Bonds by the Bloomberg Global Aggregate Bond Index, Private Equity by the Preqin Private Equity Index, Private Credit by the Cliffwater Direct Lending Index, Private Infrastructure by the Preqin Private Infrastructure Index, Private Real Estate by the Preqin Private Real Estate Index, Commodities by the Bloomberg Commodity Index, Hedge Funds by the HFRI Weighted Composite Index, Risk Free Rate by the ICE BofA US 3-Month Treasury Bill, Listed Real Estate by the FTSE EPRA Nareit Developed Index, and Listed Infrastructure by the FTSE Global Core Infrastructure 50/50 Index after December 31, 2014; data from July 30, 2008 through December 31, 2014 represented by the Dow Jones Global Infrastructure Index. Please see disclosures in PDF for additional information. Source: Bloomberg, Preqin, HFRI, Morningstar. For the period January 1, 2008 through September 30, 2023.
