Investors with cash to put to work should consider parking it in hedge funds and real estate, as traditional assets like stocks and bonds will underperform next year, according to strategists at JPMorgan Chase & Co., including Nikolaos Panigirtzoglou.
So-called alternative assets, which also include private debt, private equity and digital currencies, “should continue to perform better in 2022,” the strategists wrote. They predict that the category will return 11% next year, double the 5% gain of the equity and fixed income universe. Cryptocurrencies may move forward, but the journey is likely too bumpy to recommend it as a core item, they said.
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The recommendation is part of the team’s inaugural outlook focused on alternative investments, an asset category the bank estimates at $ 25 trillion, double the 2014 level. Of course, many of these vehicles are not easily accessible and may be difficult to get out due to liquidity constraints. While that makes them less than ideal for money managers with an investment horizon of less than a year, their brighter outlook points to an opportunity to boost performance, in JPMorgan’s view.
“Unlike traditional asset classes, establishing positions and exiting them in size is less straightforward,” strategists said in the note last week. “Therefore, it is more suitable for those institutional investors who want to allocate new cash flows to alternatives, rather than institutional investors who think about their long-term / strategic allocations to alternatives.”
Real estate and digital currencies have surged this year in part because investors piled on investments that are seen as a safe haven from inflation. Treasuries are heading for their first annual loss since 2013 amid a signal from the Federal Reserve that it plans to remove emergency support. Meanwhile, market watchers generally expect equity gains to slow in 2022 after the S&P 500’s 20% rally this year, while warnings are growing stronger over the traditional 60/40 approach to a portfolio. balanced stocks and bonds.
In the eyes of JPMorgan strategists, hedge funds, particularly those that choose assets based on macroeconomic trends, are poised to shine, as the gradual reduction in asset purchases by the Fed will stimulate investment. market volatility and will affect bond prices. Meanwhile, they see real estate, especially industrial and residential properties, benefit from the expansion of the economy at a rate above trend.
While digital assets are forecast to rise 15% next year, doubling the expected return of hedge funds and outperforming real estate’s 12.5% gain, sharp swings in cryptocurrencies diminish their appeal, he says. JPMorgan’s perspective.
Let’s take bitcoin, an asset that the JPMorgan team considers a competitive investment for gold. With the currency’s volatility roughly four times that of the precious metal, the firm’s model puts its fair value at around $ 35,000. If relative volatility halves next year, then a price target of $ 73,000 “seems reasonable,” the strategists said. The coin was trading at approximately $ 64,300 on Tuesday.
“This challenges the idea that a price target of $ 100k or more, which appears to be the current consensus for 2022, is a sustainable bitcoin target in the absence of a significant decrease in bitcoin volatility,” the strategists wrote. “Digital assets are on a multi-year structural ascent, but the current entry point looks unappealing.”
© 2021 Bloomberg