Updated: May 19, 2022
The main problem with bonds and equities is they perform poorly when inflation is high or rising, so the best thing an alternative asset class can offer is a hedge against inflation.
One that stands out is renewable energy where government-mandated incentives are designed to encourage investment in new capacity and thus the shift away from fossil fuel based electricity production. What this means for investors is returns tend to be stable as well as inflation-linked.
One typical renewable energy fund has performed better than the equity market since launch in 2013, with lower volatility, and indeed is negatively correlated to the equity market. So, adding such investments to your portfolio can substantially enhance its return-risk profile. They should also perform well if and when inflation starts to rise.
Published in Investment Week
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.