Page 8 - DIY INVESTOR MAGAZINE - NOVEMBER 2018
P. 8

       FIXED INCOME STRATEGIES RUNNING OUT OF PUFF? THERE ARE ALTERNATIVES TARGETING LONG TERM, STABLE AND PREDICTABLE RETURNS
Chief Investment Officer James Robson explains how RM Funds use lower risk real estate, infrastructure & alternative lending investments to generate steady income, protect capital and offer modest capital growth
    Alternative investments have been a popular area of focus for both retail and institutional investors over recent years. Alternatives have become standard jargon – yet one could be forgiven for not knowing exactly what is meant by the phrase ‘alternative investments’.
Alternative investments may range from higher risk higher return hedge fund, commodity and private equity strategies through the risk spectrum to lower risk infrastructure, alternative lending and real estate strategies.
They are not typical fixed income (bonds) or equity investments, meaning returns should have little correlation to the high equity valuations and low bonds yields which are a consequence of the post financial crisis quantitative easing and the low discount rates used for asset valuations.
At RM Funds we have built a team around alternatives with a focus on lower risk investments that generate steady income, protect capital and offer modest capital growth.
RM has advised on a variety of alternative asset transactions and manages two strategies within this space.
The first is a London listed investment trust, RM Secured Direct Lending and the second strategy is a UCITS product called VT RM Alternative Income; these strategies target an income distribution of 6.5% and 5% respectively.
These steady bond-like returns look attractive when compared to traditional fixed income products available to investors.
DON’T BRAG ABOUT YOUR LIGHTENING PACE, FOR SLOW AND STEADY WON THE RACE
One of the larger traditional fixed income products is the iShares Corporate Bond UCITS ETF with a yield to maturity of 2.84% and duration of eight years. Here to my mind the prospect of capital losses in excess of the annual income is very real.
As interest rates rise, bond fixed prices fall, and such a duration and low yield exposes any investor to capital losses with relatively little income as compensation.
The significant returns seen across the corporate bond market seen post financial crisis as risk free yields plummeted, combined with additional returns as spreads compressed due to QE are behind us.
The risks are that global yields start to rise and the great rotation out of fixed income occurs, thus putting pressure on traditional fixed income product prices.
Alternatives are an attractive option to consider for their portfolios however investors should be aware of the following structural investment risks and ask these questions:
        DIY Investor Magazine | Dec 2018 8



















































































   6   7   8   9   10