Updated: May 18, 2022
From Seneca Investment Managers' public marketing material. Seneca is now part of Momentum Global Investment Management.
We have decided to stop using the term ‘alternative investments’ to describe our investments that are neither equities nor bonds, and instead will use ‘specialist investments.’ We have found that the term ‘alternatives’ tends to be associated with potentially high risk vehicles such as structured products, hedge funds, art, wine, coins, and stamps, none of which as a matter of policy we would invest in.
"Specialist investments have been great diversifiers"
What we are looking for in this area are investments that genuinely offer something of value in relation to equities or bonds. For us, this means income streams that are more stable than those of equities and more real (index-linked) than those of bonds. It also means yields that are generally higher than equity market yields. And finally, most of our specialist investments are listed on the London Stock Exchange.
We have four sub asset classes within the broad ‘specialist investments’ segment: REITs, private equity, specialist financial and infrastructure. While we considered using the term ‘real assets’ which others are using, we felt that this term too was misleading, suggesting as it does investment in the aforementioned non-yielding art, wine, stamps etc. What links all four sub asset classes is that they are ‘specialist’ in some way or another. So, we have decided to use the term ‘specialist investments’.
Table 4 below provides data on seven of our ‘specialist’ investments. The message is a simple one: our specialist investments have been great diversifiers. The seven in question have all outperformed and been less volatile than the broader equity market since listing, and have all been lowly or in some cases negatively correlated with the broader equity market.
On a related matter, we have now aligned the strategic asset allocation within CF Seneca Diversified Growth Fund’s specialist investment segment with those of our other two public funds. Previously, the growth fund had a small allocation to commodities and a lower allocation to REITs. We felt that in the case of commodities, since physical commodities do not yield anything they are hard to value and thus should not be part of our strategic asset allocation. As for REITs, we felt there was no good reason the growth fund should be any different to the other two funds. REITs may not be as ‘growthy’ as equities, but they can provide a good alternative to bonds (in the credit space rather than safe haven space).
Table 5 below sets out the strategic asset allocation weights within our ‘specialist investments’ segment, showing that all three funds now have the same weightings in this area.
Published in Investment Letter, February 2016
The views expressed in this communication are those of Peter Elston at the time of writing and are subject to change without notice. They do not constitute investment advice and whilst all reasonable efforts have been used to ensure the accuracy of the information contained in this communication, the reliability, completeness or accuracy of the content cannot be guaranteed. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.