How Can I Integrate Alternatives Into My Clients’ Portfolios?
We’ve been talking a lot with advisors about alternative investments — real estate, private equity, private credit, and gold. That’s no surprise.
Today’s elevated equity and bond correlations have created the need to look beyond a traditional 60/40 portfolio for diversification. And at the same time, economic and market uncertainty have increased the importance of tailoring portfolios for specific objectives including income, downside protection, macro resiliency, etc.
But how much should you allocate to alternative investments relative to traditional core assets?
Global Market Portfolio Offers Direction
From a top-down point of view, the 2024 Global Market Portfolio (GMP) provides a helpful guide. Encompassing the full universe of investable assets and representing the investible opportunity set available to all investors globally, the GMP may be useful as a natural benchmark for your strategic asset allocations.
In the most recent update, the GMP’s allocation to alternatives is 13.4%, up from just 6.00% in Q4 2000. Notably, the 15% decrease in equities between 2000 and 2024 is split roughly equally between bonds and alternatives.
| Asset Class | Q4 2000 | Q2 2024 |
|---|---|---|
| Equity (%) | 59.77 | 44.82 |
| Bond (%) | 34.24 | 41.82 |
| Alternative (%) | 6.00 | 13.35 |
Broad Range of Approaches and Strategies for Alternatives
Given the range of strategies available, it’s important to tailor the alternatives portion of your portfolio to meet your clients’ specific investment objectives.
- Concerned about the traditional 60/40 portfolio in today’s uncertain market? Exposure to global equities, global bonds — both inflation-linked and nominal — gold, and broad commodities may help to balance risk across growth and inflation environments and prepare portfolios for whatever the market brings.
- Worried about stubborn inflation? Consider exposure to inflation-sensitive markets beyond commodities, including: gold, inflation-linked bonds, infrastructure, real estate, and natural resource equities.
- Looking to guard against drawdowns during heightened equity volatility? Historically, when the CBOE VIX Index (VIX) has spiked, gold has had strong returns relative to other asset classes. Gold offers low correlations to traditional assets and a history of resilience in times of market stress.1
- Seeking more income? In periods of low real yields, private credit may provide an opportunity to access higher yields and diversify beyond traditional public fixed income.
How We Can Help
The State Street SPDR® ETF Strategy team offers additional educational resources to help you and your clients understand alternatives and how to invest in them.
If you have questions or want to learn more about investing in alternatives, please contact us. And let us know if there’s a question From the Field that you’d like us to tackle in a future article.
The State Street SPDR® ETF Strategy team has the privilege of meeting regularly with financial advisors across the industry. These conversations provide a unique window into the challenges you face — and enhance our dedication to supporting you with the products and insights you need to better serve clients and grow your practice.