Investors have more alternatives now.
Many investors have come to understand the power of exchange-traded funds. ETFs make it easier to access a wide swath of stocks and bonds via low-cost index funds with a swipe on your smartphone. However, one area that’s been slower to evolve is the landscape of “alternative” assets. Many small-time investors were left out as cost and complexity of trading remained barriers. Thankfully, the ETF revolution is slowly unlocking the alternative investment space. There are funds that allow investors to look beyond just stocks and bonds, and trade alternatives that were once difficult or even impossible for retail investors to consider. These nine funds are worth a look.
Invesco Global Listed Private Equity ETF (ticker: PSP)
Most investors salivate when they hear about a big deal done by a private equity firm, where a leveraged buyout or a big merger results in mammoth return for those investors lucky enough to participate. Unfortunately, most people are left out of the elite private investment vehicles because of minimum buy-ins that can often be $1 million or more. This ETF pools resources from its investors to take a stake in high-profile private equity funds, including dealmaker Apollo Global Management (APO). PSP is comparatively pricey but few small-time investors could ever afford this alternative asset strategy on their own and may see this as a small price to pay.
Vanguard Real Estate Index Fund (VNQ)
While many investors focus largely on stocks and bonds, don’t forget there is a ton of wealth — and a ton of investment potential — in real estate. Unfortunately, the capital intensive nature of real estate makes it very difficult for smaller investors to get involved. This Vanguard ETF makes it easy for you by providing access to some of the biggest residential, commercial and industrial real estate companies in the U.S. This includes mall operator Simon Property Group (SPG), apartment developer AvalonBay Communities (AVB) and telecom tower giant American Tower Corp. (AMT).
iShares Gold Trust (IAU)
Real estate is a common but sometimes overlooked alternative to stocks and bonds, but equally important is gold. Many investors don’t like the hassle of buying and storing physical gold, and are turned off by some of the aggressive and fear-based marketing around gold products. History shows that gold is uncorrelated to stocks and a good alternative for investors seeking to form a well-rounded portfolio. IAU is not the biggest gold ETF, lagging behind the SPDR Gold Trust (GLD) in total assets. However, IAU charges 0.25 percent a year in expenses versus 0.4 percent for GLD. That’s a savings of $15 annually on every $10,000 invested, which adds up over time.
United States Oil Fund (USO)
Another hard asset worth considering as an alternative investment is crude oil. Though clearly a cyclical commodity, since oil demand rises with economic growth and inflation and recedes in a downturn or deflationary pressures, oil is an interesting alternative to the typical publicly traded stock. The USO fund is a pure play on this commodity, investing primarily in listed crude oil futures contracts. That means you don’t have to worry about drilling rigs, executive compensation or the threat of environmental lawsuits. With USO, your investment is tied to the price of oil, which is an attractive alternative for some investors looking at a more direct investment in the energy sector.
Global X SuperIncome Preferred ETF (SPFF)
This Global X fund provides “super income” through a focus on preferred stock. Unlike common stock that is easily bought and accessible, preferred stock is a special form of security that comes with a fixed dividend that is often much higher and safer but comes without the voting rights. In many ways, it is a hybrid between a stock and a bond. Investors often don’t consider preferred stock, but this alternative can provide stability and regular income in your portfolio. And with SPFF’s focus only on the highest-paying preferreds, it offers a big-time yield of 6.3 percent based on the last 30 days of distributions.
MicroSectors FANG+ Index Inverse ETN (GNAF)
Most investors are familiar with the popular tech stocks known as the FANGs — Facebook (FB), Apple (AAPL), Amazon.com (AMZN), Netflix (NFLX) and Google parent Alphabet (GOOG, GOOGL). But what if you want to take a contrarian stand and bet against those big names? GNAF is a quirky alternative fund to consider if this is your strategy. It is an inverse fund, meaning it uses derivatives to try and replicate the opposite performance — going up when the FANGs go down. The fund debuted in August 2018, but already has drawn $50 million in assets as investors looking for an alternative play or a hedge on these big tech stocks have expressed significant interest.
ProShares Short S&P 500 (SH)
If you want to take a broader approach to “short” investment alternatives, the most popular downside fund based on assets under management is this ProShares offering benchmarked to the S&P 500 index. With more than $2.1 billion in assets, it’s a liquid and established investment alternative. That makes it appealing to tactical traders looking to play a short-term downtrend in the market, as well as more holistic investors simply looking to hedge their positions. Just remember, of course, that a downside fund only works when its target investment is falling. If the S&P 500 rises sharply, SH will take a tumble in kind.
First Trust Long/Short Equity ETF (FTLS)
Another interesting alternative strategy is to play both sides of the market via a “long-short” strategy. This First Trust fund takes the approach of the AdvisorShares ETF to bet against targeted stocks even as it focuses on the strongest names that it wants to put its money behind. It’s admittedly complicated and requires a deft touch, but can pay off — particularly in a choppy market where it’s difficult to rely on your typical index fund. Right now, FTLS is about 40 percent allocated to the downside with bearish bets against companies like Salesforce.com (CRM). Its biggest bet on the upside is for aerospace giant Boeing Co. (BA).
Anfield Capital Diversified Alts ETF (DALT)
Can’t decide which alternative investments to add? Then try this ETF that is a one-stop shop for several popular alternatives including closed-end funds, business development companies and real estate investment trusts. DALT pursues “market segments and sectors that will typically have a lower correlation to the general equity and fixed income markets.” At its core, that’s what alternative investing is about: finding asset classes that do something different than typical stock or bond holdings. Though this fund is smaller, with just under $50 million in total assets and an inception date of late 2017, it may be a nice way to add a wide swath of alternatives without too much complexity.
The best ETFs for alternative investments.
Here’s a list of nine ETFs to buy to make alternative investments:
— Invesco Global Listed Private Equity ETF (PSP)
— Vanguard Real Estate Index Fund (VNQ)
— iShares Gold Trust (IAU)
— United States Oil Fund (USO)
— Global X SuperIncome Preferred ETF (SPFF)
— MicroSectors FANG+ Index Inverse ETN (GNAF)
— ProShares Short S&P 500 (SH)
— First Trust Long/Short Equity ETF (FTLS)
— Anfield Capital Diversified Alts ETF (DALT)
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9 ETFs to Invest in Solid Alternative Assets originally appeared on usnews.com
