Alternatives

After a long period of calm, global markets now face tumbling oil prices, geopolitical risks and monetary policy changes. Investors looking for new ways to diversify in this uncertain environment should take a long look at investments that don’t take their cues from stock or bond market movements.

A combination of factors has driven oil prices down since midyear, and while oil prices could fall further in the next couple of months, we think they’re likely to rebound in 2015. If they don’t, there could be an even bigger surge down the road.

Multi-asset strategies like risk parity owe much of their popularity to their ability to navigate the global financial crisis. Lately, critics have cited levered bond returns as the driver—and as a looming headwind. We think they’re missing a key point.

With a US housing recovery in full swing, this may be a good time for investors to consider securities backed by residential real estate. We think they’re an attractive way to diversify exposure to high-yield bonds and other risk-seeking assets.

Bond investors are used to managing interest-rate risk and credit risk. But the financial crisis should have taught us that there are times when liquidity risk can be just as important to manage. Now is one of those times.

Pension fund managers, like many investors, have historically paid a premium for liquidity. Lately they’ve started to realize that liquidity can be an illusion—but it can also be an opportunity.

Concerns about a possible collapse in China’s property market continue to grow. However, our research suggests that fundamentals are more robust than many think. The biggest danger lies in the potential for policy mistakes.

Bond investors have historically enhanced their returns by taking on more interest-rate or credit risk. Today, a third opportunity is emerging for investors: the liquidity premium.

Real assets are coming off of a horrendous year relative to diversified stocks. Meanwhile, inflation is expected to stay low indefinitely. So why in the world should anyone own real assets now?

Even as the US Federal Reserve has continued to taper bond purchases and hint at eventually tightening monetary policy, long-term US Treasury yields have not only continued to fall, but outperformed all other maturities from two-year to 10-year bonds. Investors shouldn’t bank on them falling much further.