The FOX Deal Exchange session at the 2011 FOX Fall Forum had the objective of supporting a community of like-minded family investors who are interested in actively investing together in private equity funds and direct transactions. All participants were FOX members. Six members provided an in-depth overview of the deals, and eight additional participants briefly summarized other investments. All 14 had a lead investment role in the opportunities.
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Master limited partnerships represent a niche asset class that is gaining attention for its attractive yield potential, historically low correlation to other asset classes, and potential tax benefits. Strong industry fundamentals, attractive valuations, and above-average dividend yields provide a compelling entry point for investors looking at MLPs.
The authors have contended since late 2008 that the global deleveraging process is likely to occur in multiple stages and last until 2014 or 2015. Investors need to be aware of this cycle in allocating assets and to focus on capital preservation while resisting the temptation to be swayed by short-term volatility.
Investors often overestimate the cyclical risk involved with high-yield bonds. Buying these bonds today with a 12- to 18-month horizon makes sense. An analysis of prior cycles shows that investors with such a horizon or longer can hold on and eventually see the benefits of declining spreads and current income.
Producing alpha over long periods of time requires keen investment insight, leadership in exploring untapped opportunities and inefficiencies, and integrating a robust risk management process that addresses concentration, illiquidity, and transparency. This paper addresses how each of these inefficiencies may be exploited to help generate alpha.
Commodity allocations in model portfolios have moved from being exotic to commonplace. The benefits being sought by such allocations typically include protection against inflation and diversification. While commodity allocations can serve both of these roles handily, the manner in which some clients implement these strategies potentially reduces the desired benefits.
Most investors believe an index-based ETF, ETN or swap will give them an experience similar to the equity markets, where an index-based product represents an unbiased view of the market portfolio, using market capitalization as weights. Unfortunately, this intuition proves misguided due to important differences in how these indexes are constructed.
The authors discuss their criteria for choosing alternative investments, the number of these investments to include in a portfolio, how to allocate strategically and when to change that allocation, and the practical challenges for implementation.
A move from one investment manager to another comes with costs that are not easy to identify but should be considered before making the switch. A transition manager can help in assessing the issues and coordinating the logistics and the execution process.
Zero economic activity, confidence and effective policymaking are likely to keep market volatility levels elevated as well as pressure risky asset prices in the near future. However, this uncertainty offers the opportunity for investors to rebalance their portfolios by taking advantage of attractive prices for risk assets.