It’s been awhile since WPs discussed alternative investments so we’ve gone in search of three options advisors might consider for the riskier portion of their client’s portfolios.
It’s been awhile since WPs discussed alternative investments so we’ve gone in search of three options advisors might consider for the riskier portion of their client’s portfolios.
Mild – Alaris Royalty
This Calgary-based company trades on the TSX under the symbol AD. Currently within 10% of its 52-week high, it provides cash financing to private companies at an agreed upon valuation, in exchange for a pre-determined distribution from those private companies. It’s essentially non-control private equity.
Your clients receive a dividend distribution monthly based on the previous year’s total distributions taking into consideration that year’s growth in revenue. Preferred in nature, the distributions take precedence over common equity in the investee companies.
The advantage of Alaris’s business model: it works with its investee partners to ensure they are successful by structuring Its financing deals so as not to require principal payments which allows for optimal cash flow in which to grow their businesses.
It’s most recent deal at the end of November saw it provide $35 million in growth capital to one of the largest Planet Fitness franchisees in the U.S. It expects to receive US$5.25 in preferred distributions in the first year of its partnership.
With deals like this it’s no wonder its stock is up 38% annually over the past five years.
Medium – iShares Alternatives Completion Portfolio Builder Fund (XAL)
A collection of nine ETFs from BlackRock, it provides exposure to one or more alternative asset classes. Defensive in nature, its $27 million in assets are invested primarily in fixed income securities (63% weighting) with a sprinkling of real estate, emerging markets and commodities.
Currently paying a semi-annual distribution that yields 3.3%, it’s returned 9.9% since its inception in November 2008. Your clients aren’t going to hit any home runs with XAL but if you’re looking for a nice contrast to the rest of their portfolio, this fund-of-funds will do the trick having just one year of negative returns – was down 0.08% in 2013 providing nice non-correlation – since its inception.
Charging 0.72% annually, some might consider it expensive, but all things are relative. You’ll pay a lot more for an actively-managed mutual fund that makes alternative investments.
Hot – ProShares Morningstar Alternatives Solution ETF (ALTS)
This ETF fund-of-funds trades on the NYSE Arca in U.S. dollars so if your client’s not (or you’re not) into dealing with the whole currency thing, it might not be for either of you. In addition, its MER is 0.95%, 23 basis points higher than iShares’ XAL.
But then this ETF’s got the research capabilities of Morningstar behind it. And it invests in a group of ETFs that are far more interesting and exotic than the XAL. It’s got a long/short fund, a hedge fund, a managed futures strategy, a private equity fund and even a merger fund.
Passive in nature and based on the Morningstar Diversified Alternatives Index, it’s designed to enhance a traditional stock and bond portfolio. Rebalanced monthly, the index’s methodology leans heavily on a momentum overlay that allows for significant reweighting of the ETFs when the situation calls for it. Like the XAL, ALTS is meant to reduce the correlation of a traditional portfolio.
In existence for less than three months, it’s not something you’ll want to rush into.
Mild – Alaris Royalty
This Calgary-based company trades on the TSX under the symbol AD. Currently within 10% of its 52-week high, it provides cash financing to private companies at an agreed upon valuation, in exchange for a pre-determined distribution from those private companies. It’s essentially non-control private equity.
Your clients receive a dividend distribution monthly based on the previous year’s total distributions taking into consideration that year’s growth in revenue. Preferred in nature, the distributions take precedence over common equity in the investee companies.
The advantage of Alaris’s business model: it works with its investee partners to ensure they are successful by structuring Its financing deals so as not to require principal payments which allows for optimal cash flow in which to grow their businesses.
It’s most recent deal at the end of November saw it provide $35 million in growth capital to one of the largest Planet Fitness franchisees in the U.S. It expects to receive US$5.25 in preferred distributions in the first year of its partnership.
With deals like this it’s no wonder its stock is up 38% annually over the past five years.
Medium – iShares Alternatives Completion Portfolio Builder Fund (XAL)
A collection of nine ETFs from BlackRock, it provides exposure to one or more alternative asset classes. Defensive in nature, its $27 million in assets are invested primarily in fixed income securities (63% weighting) with a sprinkling of real estate, emerging markets and commodities.
Currently paying a semi-annual distribution that yields 3.3%, it’s returned 9.9% since its inception in November 2008. Your clients aren’t going to hit any home runs with XAL but if you’re looking for a nice contrast to the rest of their portfolio, this fund-of-funds will do the trick having just one year of negative returns – was down 0.08% in 2013 providing nice non-correlation – since its inception.
Charging 0.72% annually, some might consider it expensive, but all things are relative. You’ll pay a lot more for an actively-managed mutual fund that makes alternative investments.
Hot – ProShares Morningstar Alternatives Solution ETF (ALTS)
This ETF fund-of-funds trades on the NYSE Arca in U.S. dollars so if your client’s not (or you’re not) into dealing with the whole currency thing, it might not be for either of you. In addition, its MER is 0.95%, 23 basis points higher than iShares’ XAL.
But then this ETF’s got the research capabilities of Morningstar behind it. And it invests in a group of ETFs that are far more interesting and exotic than the XAL. It’s got a long/short fund, a hedge fund, a managed futures strategy, a private equity fund and even a merger fund.
Passive in nature and based on the Morningstar Diversified Alternatives Index, it’s designed to enhance a traditional stock and bond portfolio. Rebalanced monthly, the index’s methodology leans heavily on a momentum overlay that allows for significant reweighting of the ETFs when the situation calls for it. Like the XAL, ALTS is meant to reduce the correlation of a traditional portfolio.
In existence for less than three months, it’s not something you’ll want to rush into.
