Stocks are faltering this year, and fixed income assets aren’t offering investors much protection. Translation: It’s a good time for market participants to consider alternative investments.
However, alternatives – as is the case with traditional asset classes – don’t perform in lockstep with each other. For example, rising interest rates are weighing on real estate stocks this year, while the surging dollar is crimping commodities. Fortunately, investors have alternatives in the alternatives space, including merger arbitrage, which is accessible via the Merger Fund (MERIX).
Unlike gold or real estate, merger arbitrage isn’t vulnerable to rising rates. In fact, the strategy’s history in rising rate environments is appealing, indicating MERIX is a fund investors may want to evaluate over the near-term. MERIX is more than nine years old, so it’s battle-tested across periods of rising Treasury yields.
While the fund is seasoned popular among some experienced investors, recent data indicate MERIX could gain a following among some younger investors that are increasingly alternative strategies.
“Some 75% of high-net-worth investors between the ages of 21 and 42, compared to 32% of investors over 43 years old, don’t expect “above-average returns” solely from traditional stocks and bonds, according to a Bank of America Private Bank study released Tuesday. The firm polled 1,052 high-net-worth investors with at least $3 million in investable assets from May to June 2022,” reports Kate Dore for CNBC.
It makes sense that younger investors are considering alternative asset classes. For younger millennials and Gen Z, 2022 represents their first brush with high inflation and rising interest rates.
Potentially underscoring the case for MERIX is that as these market participants become familiar with alternatives, they’ll seek opportunities beyond commodities and real estate, which, as noted above, are faltering this year.
“What’s more, 80% of those young investors are turning to so-called alternative investments, which fall outside of traditional asset classes, the study found. Younger investors are allocating three times more to alternative assets and half as much to stocks than other generations,” according to CNBC.
Typically, investors embrace alternatives to pare exposure to public markets, reduce volatility and diversify portfolios. MERIX accomplishes the latter two objectives, and with its positive history against the backdrop of Federal Reserve tightening, the actively managed could be attractive to investors over the near term.
For more news, information, and strategy, visit the Alternatives Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.