Alternative investing on the ASX in December 2020
There is little to update on the Alternatives front since we last looked at them a year or so ago.
They fit into three categories and each have their own reason for not investing in them at the moment:
1. Liquid investments with low Beta
We’re thinking equities, bonds and other highly liquid investments here.
Short term trading:
There are currently no new short term low beta liquid investment trading opportunities which we've come across.
With short term trading of these instruments, the Beta is low to the direction of the market. For example a day-trade has low correlation to the monthly return of the ASX.
Our best exposure through this type of trading is through WAA, as most of the others down the legal structure ladder (such as unlisted managed funds, managed accounts etc.) had lower scrutiny of mandates, compliance or regulation. In my experience with those lower-tier ones, all goes really well, until it doesn’t, then it goes really bad - really fast. I’m thinking Opes Prime, trading systems etc.
If however, they have a robust model, then a reputable custodian will take the strategy on, if not, they stay lower-tired for a reason. The rest, who are strong performers in this space, tend to have limited capacity and either charge a lot (~3% pa + performance) or expel their investors so they trade their own money, like Renaissance famously did some time ago.
Long/Short or Hedge Funds:
There are not many new entrants here as their performance as a group has been under the index.
These strategies work really well when markets revert to the mean. We’re not talking about Long Term Capital Management requirement for mean reversion here, but the US index having the longest and strongest bull market in history – then the shortest and sharpest pullback in history.
The Growth to Value rotation is working well for them, but they need a good 12-18 months plus, before any new managers are lured into a roadshow to raise funds, list a new instrument etc. Around that time we should see the LICs on the ASX that are in this space come back to par/NTA, or possible premiums.
That leaves us with AEG/WAA etc. which we already have or are across. AEG becomes a possible top up.
We’ve looked at this before, just that now there are more specific commodities to invest in using ETFs than before.
If gold has suddenly become more alluring to you then this avenue can be explored in more detail.
We have written this space off for about four to five years now as having over-inflated prices, while bond rates dropped across the globe. The bond proxies took on a premium in 2012 and only kept growing… until Covid 19, when they crashed with the rest of the market.
Transurban has mostly recovered their traffic – although the share price is closer to fair value now.
SYD has not recovered their traffic, but has renewed hopes via the recent vaccine announcements. I would not hazard a guess on fair value for something that has been blown apart as much as it has and whose key customers are on the brink/subject to, fierce government spending cuts.
That leaves ETFs which cover these two and/or similar infrastructure assets. The reasonable pricing of the ETFs is a function of their underlying investments which capture assets from all ends of the spectrum. Thus an ETF purchase might be more of a punt.
If you’re feeling like infrastructure is a possible investment now, then I’d be erring on the active manager side such as a Magellan, AMP or RARE rather than an ETF that is oblivious to CV-19 impacts. While there is never a clear time to invest, it would seem that faith in human nature and desire to better our lives (through global trade and travel etc.) is a better ‘bet’ than buying over-priced infrastructure assets in 2018.