Advisors Lean Into Alternative Investments

With financial markets at lofty levels, the timing may be right to diversify into alts, say several advisors.

Jeff_Benjamin
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Wealth Management Editor
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Reviewed by: etf.com Staff
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Edited by: James Rubin

With equity markets charging into 2024 on strong 2023 momentum and the Fed hinting toward rate cuts that would further juice the markets, some financial advisors say it’s time to start hedging investment risks.

“Now is absolutely the time for alternative investments,” said Noah Damsky, principal at Marina Wealth Advisors in Los Angeles, adding: “With such divergence in performance between asset classes with outperformance in technology and large caps, there can be opportunities in dislocations across the board."

Historically, alternative investment strategies that may include ETFs have gained appeal following a negative market event, which is comparable to buying homeowners insurance while your house is on fire. It’s too little, too late.

Advisors like Damsky aren’t specifically forecasting a sharp downturn for stock or bond markets but believe a little insurance can’t hurt. “We're continuing to allocate to alternative investments,” he said. “We focus on traditional private equity vehicles with 10-plus-year lockups rather than more liquid alternatives, which we believe can be negatively impacted by retail investor nervousness.”

In the alternative investments space, liquidity can range from instant in the form of different ETFs offering alternative exposure to multi-year lockups in the form of private equity, venture capital, real estate, and hedge funds.

Purists will often argue that liquidity hurts alternatives because it subjects the investment strategy to the whims of the emotional masses.

Jake Miller, co-founder of New York-based Opto Investments, believes financial advisors should strive to increase portfolio allocations to less-liquid private investments.

“Strategically, most portfolios are underweight privates,” he said. “Higher public market yields may make a shift into private credit less urgent, but surging equities and high valuations make this a great time to rebalance into the growth sectors of private markets.”

For those investors with a “budget for illiquidity,” Miller recommends a “10%-to-20% shift as a starting point” to allow for diversification within private markets and the potential for real portfolio impact, both as an enhancer and diversifier. 

Less Liquid Investments' Longer Timeframe

Nathan Hoyt, chief investment officer at Regent Peak Wealth Advisors in Atlanta, also stressed the benefits of less liquid investments.

“For those families that can stomach the illiquidity and longer time horizons of alternative investments, now is an ideal time to be allocating to private markets and illiquid investments,” he said.

“As 2022 reminded investors, the volatility of public equity is not a roller coaster most people can comfortably stay on,” he added. “Now that public investments are reaching more expensive valuations, alternatives may look more attractive to the average asset allocator.”

Michael Reisner, co-founder and co-chief executive officer at CION Investments in New York, is a fan of diversifying into alternatives regardless of current market and economic conditions.

‘In our view, the demand for alternatives from individual investors is just getting started,” he said. “It’s driven by advisors that are seeing the value of alternatives in lowering portfolio volatility and creating the potential for better risk-adjusted returns.”

Reisner added that demand for alternatives is driven by investors realizing their “60/40 allocations [are] not keeping up with their goals.”

“It’s not just retirement investors,” he said. “Younger investors are realizing that traditional investing won’t provide the lifestyles they want to create, and they are looking to alternatives as a differentiator when selecting an advisor.”

Meanwhile, Vance Barse, founder of Your Dedicated Fiduciary in San Diego, is not convinced a wholesale jump into alternative strategies that can be more expensive is the best move at this time.

“Now that the equity markets are back up to around all-time highs, we’ve heard talk about adding alts as a hedge, and that’s not unusual,” he said. “But it’s important to understand the extent to which we want to participate in a return stream.”

In essence, Barse believes the tradeoff in terms of liquidity and higher fees might not be worth it at this point in the cycle when the Fed’s monetary policy is still giving investors an attractive opportunity to sit in cash.

“In the current rate environment, we can get a return stream that is similar to some of the return streams that have historically been available in alts,” he said. “It’s the alternative to the alternative.”

Jeff Benjamin is the wealth management editor at etf.com, responsible for coverage related to the financial planning industry. This includes writing, hosting podcasts, webinars, video interviews and presenting at in-person events.


Jeff is a veteran journalist with more than 30 years’ experience covering the financial markets. He has won more than two dozen national and regional awards for his reporting. He most recently worked as a senior columnist at InvestmentNews where he wrote about investment products and strategies, as well as the broader financial planning industry. Prior to that, Jeff worked as an analyst at Cerulli Associates where he researched and wrote reports on the alternative investments industry. Jeff also worked as a money management reporter at Dow Jones Newswires, where he covered the mutual fund industry.


Based in North Carolina, Jeff is a former Marine and has a bachelor’s degree in journalism from Central Michigan University.