Investment advisors are turning to alternative investments to attempt to help stabilize and better balance client portfolios. If stock and bond market performance in the first quarter of 2022 is any measure, advisors might be prudent to make allocation changes sooner rather than later. Here are three reasons why:
Advisors with income-oriented clients have endured several years of historically low interest rates. While yields have recently begun to inch upward, investment-grade rates remain inadequate to keep pace with inflation.
Source: morningstar.com
As rates have increased, duration risk has come to the forefront for fixed-income investors. Bond prices suffered in the first quarter of 2022, driving the worst negative returns for fixed income indices in decades.
Source: morningstar.com
Large market swings accelerated in the first quarter of 2022. The frequency of down days in the equity markets more than doubled compared to recent years.
Source: morningstar.com
Private Real Estate investment strategies may help address performance challenges and volatility of traditional assets.
With a historically low correlation to stocks and bonds, Private Real Estate may help improve portfolio diversification. In addition, property owners can seek to raise rents to keep pace with rising costs, strengthening Private Real Estate’s case as an effective inflation hedge.
And among the big four commercial real estate asset classes—multifamily, retail, office, and industrial—multifamily remains a preferred asset class for many. Multifamily, as shown below, continues to serve as a vital alternative source of income potential for investors seeking greater yield.
Source: Marcus and Millichap
Despite the record year Multifamily Real Estate experienced in 2021, market fundamentals remain strong for the sector, as recently highlighted by Mark Renard, Executive Vice Chairman of Cushman and Wakefield:
“Multifamily development still represents one of the most compelling risk-adjusted return investments in the marketplace today.” Supply and demand fundamentals are in check, and [I] expect rental growth to continue and occupancy levels to keep tracking above historical trendlines.”
- Mark Renard, Executive Vice Chairman Cushman and Wakefield
As advisors consider portfolio allocation changes for clients to strive to help counter the effects of falling bond prices, heightened volatility, rising inflation, and stubbornly low yields, allocating to Private Multifamily Real Estate may be well worth consideration.
If you’d like to learn more about the multifamily investment option, download our FREE eBook, A Potential Inflation Hedge for Today: Private Multifamily Real Estate. You can also conveniently schedule a one-on-one meeting with me HERE.