- US equities may struggle to achieve the same gains as over the past decade.
- JPMorgan Asset Management recently published a report on profitable alternative investments.
- JPMAM strategist David Lebovitz shared six asset classes to look at outside of US indices and bonds.
The years of easy gains for US equities are likely over, so investors need to get creative to get the big returns they’ve grown accustomed to, say experts at JPMorgan Asset Management (JPMAM).
The S&P 500 and Nasdaq are falling back to earth in 2022 after rising at least 16% and 21% annually, respectively, from 2019 to 2021. Worries over inflation, monetary policy tightening and the conflict in Ukraine caused both indexes to fall 6% and 10.7%, respectively, for the year. And while each index is still up from 12 months ago, their returns have been halved or completely wiped out after adjusting for inflation.
But some analysts think the worst is yet to come.
In recent months, Bank of America’s Jill Carey Hall and Stifel’s Barry Bannister have warned that another “lost decade” for US stocks could be here. Carey Hall told Insider in November that US large caps in particular would see minimal returns, but Bannister didn’t make that distinction. Instead, he told Insider last week that he expects US stocks to return to 0% through 2031.
JPMAM’s global market strategist David Lebovitz isn’t ready to go that far, but he sees an increasingly challenging environment for stock indices and US bonds over the next decade. That’s why he and his colleagues at JPMAM have compiled a guide to alternative investments in the first quarter of 2022.
“Expected equity and fixed income returns from publicly traded stocks and bonds are going to remain under pressure over the next 10 to 15 years,” Lebovitz told Insider in a recent interview.
Lebovitz continued, “We think stock returns will be positive. But we don’t necessarily think the average return — call it 9% a year — over the past two decades is necessarily in the cards going forward. “
Steadily rising interest rates will complicate the investment landscape, Lebovitz said. When rates are low and the cost of money is cheap, investors are more willing to take risk on risky investments.
But investors shouldn’t just store their savings under a mattress now that rates are rising. There are other ways to get the returns and regular payouts that stocks and bonds have historically offered but may no longer be able to provide, Lebovitz said.
“Investors need alternatives in the future because the traditional opportunity set will not be sufficient to enable or help them achieve their long-term financial goals,” Lebovitz said, adding, “We We are convinced that there is an opportunity in alternative assets.”
Think outside the public markets: 6 best alternative investments
Most individual investors have learned that a two-pronged approach is the smartest way to invest. For baby boomers, it’s probably the traditional 60-40 stock bond portfolio. Millennials and Gen Z, on the other hand, can split their money between stocks and cryptocurrencies.
But JPMAM strategists warn that the 60-40 paradigm is outdated and overly simplistic.
Betting on just two asset classes is risky, especially given the concerns over stocks, bonds, and cryptos. Stock indices are trading at historically high valuations and could fall further, bonds tend to provide either “protection without income” or “income without protection”, in Lebovitz’s words, and cryptos have no long history and are very volatile.
These concerns explain why institutional investors have shunned public markets for years, Lebovitz said. Diversifying stocks and bonds into alternative assets strengthens a portfolio by providing what Lebovitz called “uncorrelated income streams.”
And there’s no reason retail investors can’t follow in the footsteps of their institutional peers.
Lebovitz shared six alternative investments with Insider to combat what he called “insufficient” returns in stock indices and bonds over the next decade: immovable, merchandise, infrastructure & transport, private credit, capital investmentand hedge funds.
Below is Lebovitz’s thesis for each, along with ways to play the trend that have been compiled by Insider. The JPMAM strategist said he could only talk about ideas, not products, but he encourages investors to seek out a wide variety of opportunities across the spectrum for each alternative investment. Along with each is a chart from JPMAM’s report that shows a relevant trend for the asset class.