Looking at the alternatives to equity portfolios
Financial upheavals inflicted on the world over the past few years have left private banking clients feeling edgy about their equity investments - thus prompting them to seek alternative solutions.
Ivan Leung, chief investment strategist at JPMorgan Private Bank, said his firm had been tailoring such investment solutions for clients who are hesitant about raising their exposure to equity investments. These options include fixed-income instruments, currencies, distressed real estate and commodities.
'We continue to advocate for currency diversification for the long term, especially with emerging market currencies and commodities,' said Leung.
In the area of fixed income, strong corporate fundamentals as well as supply and demand dynamics should support a high yield over the near term, he said.
'We expect default rates to remain low for the US in 2012, but markets are pricing in a higher expectation. As a result, we continue to favour high-quality, high-yield,' Leung said.
An area where investors can expect to get higher yields is in the private credit market, where the lack of financing is allowing investors to lend at higher rates.
Alternative investments such as energy and distressed real estate also provide attractive opportunities, Leung said.
In distressed commercial real estate investing, there are many high-quality assets available at substantial discounts to replacement cost or at higher-than-average rates of return, based on the expected income a property would generate.
'Since the recession, we have been opportunistically adding exposure to commercial real estate and see the greatest value in the distressed sector, assuming that it can be priced appropriately and is diversified' Leung said. 'A significant recovery in the real estate market is not required for the potential to realise outsized gains.'
Looking at the share market, Leung recommends stocks that are poised to gain from high or rising dividends. Such investments include quality companies with leading positions in their respective industries, and economically resilient firms with globally diverse revenues and exposure to emerging markets.
There are also attractive opportunities in the commodities market where supply is lacking. 'Looking further into 2012, emerging market demand growth should improve and we see relatively more supply pressure on crude oil, precious metals and agriculture,' Leung said.
'Our long-term positive outlook on gold remains and we see potential upside, especially if risk-asset markets rally or the European Central Bank delivers more explicit quantitative easing.'