The current strength of capital markets

Calm amid financial storm

If you were to read, listen and watch much of the news lately, you’d think the world was going to hell in a handbasket. There are protests in the United States, political populism is surging in various parts of the world, and political and diplomatic conflict are at play in the Middle East, Russia and elsewhere.

Yet, amid all this apparent political turmoil, there has been some steady optimism in one very important global sector: the stock markets, as well as other aspects of the capital markets. So, as political uncertainly unfolds in the States a and elsewhere, those that preside over capital seem to believe that everything is just fine, at least for now.

All-time highs

For example, just recently, most of North America’s most prominent stock market indexes — including the S&P 500, Dow Jones, Nasdaq, and TSX — reached all-time highs. The U.S. dollar rose against all major currencies near the end of 2016. And various equity sectors finished strongly to end the year, including financials, energy, and materials.

So, what does this say about the prospects of investing? Well, it says a couple of things. First, forward-thinking investors should never get distracted by political events. A lot has happened during global history, yet financial markets often have a way of sorting themselves despite apparent political confusion.

The need for a disciplined approach

Second, with respect to investing capital, a disciplined mind makes for a prosperous portfolio. As a result, investors should never let themselves get distracted by what has increasingly become the entertainment of politics, cable news, and social media.

Instead, disciplined investors should always look for the underlying trends that truly drive capital towards lucrative opportunities, and seek fellow investors and managers that also maintain this needed discipline in the financial markets.

A viable alternative to traditional investing

Alternative investments vs. traditional investments

The term alternative investments doesn’t have the same meaning it once did. In fact, perhaps not too long ago, if someone came to you with the proposition of investing in something alternative, and you were playing a word association game at the time, terms that might also pop into your head include risky, dubious or even strange.

The fact is that today’s world of investments isn’t what it was thirty years ago, twenty years ago, or even as recently as a decade ago. Indeed, there has been what one can consider a significant shift from so-called traditional investments to the growing category of alternative investing. Let me explain.

A shift from stocks and bonds

Back in the day, so-called traditional investments, including bonds and stocks, could deliver some relatively high yields with relatively low risks. However, in today’s investment landscape, finding these high-yield, low-risk opportunities among stocks and bonds has become an exceedingly difficult proposition. Bond yields are not what they used to be, and neither are “high income” stocks, which now often have lower values than yesteryear, and correspondingly lower-paying dividends.

As a result, investors seeking the golden grail of high yields with lower risk have had to look elsewhere, and that’s where alternative investment firms have filled the gap — not with fly-by-night investment schemes and tricks, but with proven investment strategies that meet the needs of increasingly demanding investors.

Finding the right alternatives

The trick, however, is that these alternative investments are more challenging to manage, so they require a developed expertise in the field, whether the underlying investments involve real estate, mortgages, private-debt funds — you name it.

Consequently, investors need to be more discriminating than ever to find these rewarding investment opportunities. But, if the right opportunities are found, and are managed by qualified experts, than the returns are as formidable as any traditional investment has ever been, and more.

The evolution of alternative investing

REIT versus MIC

The term alternative investing is a bit peculiar because, in essence, most investors seeking higher rates of return are in fact looking for alternatives to the status quo; alternatives to what’s available to most investors.

Therefore, when it comes to alternative investing, the challenge isn’t so much to look for something different, but to know where to look at the right time and the right place in order to achieve favourable yields.

The real-estate alternative

Not too long ago, real-estate investment trusts (REITS) were the so-called “alternative investments” of choice because they allowed for a more simplified and structured vehicle to invest in real estate. With REITS, instead of looking yourself for a diversified portfolio of properties to invest in, a REIT did this for you in a way that’s relatively simple while delivering desired returns.

However, the problem with “alternative investing” is that, at some point, it doesn’t become much of an alternative anymore. That is, as the investment vehicle grows in popularity, it becomes that much more difficult to find investment opportunities that beat the market. This may have happened to some REITS, as well as other investments labelled alternative.

Fast forward to the present, and another form of alternative investing has sprung up: mortgages. Most people don’t see mortgages as a form of investment. However, for those seeking a genuine alternative, mortgages can be a relatively safe form of investment at traditionally higher rates of return.

The emergence of alternative mortgage investing

Let me explain. In Canada, for example, the Canadian government has established rules to invest in private mortgages, which are largely responsible for establishing mortgage investment corporations (MICs).

With MICs, you have an alternative investment that is very much structured like a REIT, except the underlying asset isn’t real-estate property, but mortgages. Remember, mortgages are simply secured loans that collect interest payments backed by the value of the property itself.

As such, mortgages have traditionally served as a high-yield, low risk opportunity for investors. And, since they haven’t been utilized much in the mainstream yet, mortgages also serve as viable alternative investment opportunities for those who know where to look.

The Ascend Group presides over a diversified number of subsidiaries spanning the financial and investment sectors in Canada and the United States. To find out more, please browse the appropriate section of this website, or contact us directly. Thank you.