Investors should consider boosting their alternatives exposure as traditional asset classes face a gloomy outlook due the state of the global economy, according to research house van Eyk.
"Exposure to a well-diversified portfolio of alternative asset managers of hedge funds, gold and direct property delivered investors double-digit returns last financial year and the fundamentals for the asset class suggest it could continue to perform strongly against more traditional assets like shares and bonds," van Eyk senior analyst John Wong said.
Wong said with many traditional asset classes facing headwinds from high global debt levels and the threat of negative real returns from rising inflation, investors could benefit from increasing exposure to alternatives as they had a low correlation with traditional assets.
"Investors are left with limited options in traditional asset classes and could expose themselves to the risk of either lower returns or positioned with an excessive level of investment risk in their portfolios," he said.
According to van Eyk, the fundamental drivers remained in place for the gold price to climb higher, given record-low interest rates and currency depreciation in the United States and Europe, as well as inflation fears.
Gold prices rose back above US$1900 an ounce earlier this week, however, that was still below its inflation-adjusted peak of US$2400 an ounce in 1980, Wong said.
UBS Wealth Management head of investment strategy and consulting George Boubouras said the firm continued to favour exposure to gold via stocks and exchange-traded funds.
"Gold is an appropriate hedge for inflation, spikes in market volatility and sustained US dollar weakness," Boubouras said.
Earlier in the year, Advance Asset Management allocated $400 million from its multi-sector funds into a newly-built alternatives product.
The fund, Advance Alternative Strategies Multi-Blend, comprises hedge fund managers that use various strategies and also invest in low-cost liquid products, such as exchange-traded funds.
"This new portfolio has a very strong emphasis on diversification and we aim to keep it lowly correlated with equities," Advance alternative assets portfolio manager Chris Thompson said.
"We believe that an investment in alternatives in this difficult macro-economic environment will add tremendous value to our diversified portfolios."
