How the Big Money Ditched Stocks
- Details
- Published on Wednesday, 15 August 2012 15:10
- Written by Andrew Snyder, Editorial Director, Insiders Strategy Group
- Hits: 450
Two weeks ago, I wrote something that may have sounded abstract to many readers: "Alpha is dead. Long live risk-adjusted return."
It doesn't sound like a statement that's all that powerful, but let me tell you... it has changed the world of investing.
What I'm seeing is something nobody expected five years ago. When I wrote about it a year ago, few folks believed me.
But now we can't argue what's happened. The world's largest investors have jumped into alternative strategies in a huge way. Pension funds are ditching their equity stakes and instead are buying timber... rental properties... and even wind farms.
It's not because they're trying to beat the market (what we call Alpha). It's because they're trying to avoid getting beat by the market.
Let me explain...
We're on the verge of a systemic collapse. Whether it happens when we leap over the fiscal cliff on Jan. 1... in two years... or a decade from now, there is no avoiding our fate.
The dollar will collapse. Uncle Sam will go broke. Wall Street will plunge. And ordinary Americans will suffer.
Sorry. But it's true.
That's why the smartest of investors are refocusing their attention. They're forgetting about earning an outsized return. And instead, they're homing in on a four-letter word I am going to blow apart when we get to Vegas next month.
RISK.
Beating risk is the new version of beating the market.
For proof, we turn to a couple of paragraphs from an article published by Reuters yesterday:
David Jones, CEO of Allianz Specialized Investment, said returns on wind and solar projects are now around 7% -- much higher than many other asset classes -- and are totally decoupled from the ups and downs of the financial markets.
By comparison, 30-year U.S. Treasuries are now yielding less than 3%, while yields on some shorter high-grade government bonds are negative and equities have been extremely volatile during the recent economic turmoil.
The world's largest investors have finally done what we've long called for. They've ditched stocks and traditional bonds and have turned to alternatives.
If you've ever bought a solar or wind stock, I know what you're thinking: "Hell no. I'm not losing my shirt on another green energy play."
You're right. Green stocks are losers.
But again, the big boys aren't buying stocks. They're taking the path I outlined yesterday... it is the real deal. These investors are building the wind farms, creating a permanent and reliable stream of cash flow.
Wind is far more reliable than the government's hot air, they argue.
"I think this will... develop into a standard investment case for many pension funds, because the alternative of investing in government bonds provides such bad returns that you are obliged to identify alternative investments," said Torben Moger of PensionDanmark.
Remember what I wrote yesterday. If you're not earning in the neighborhood of 10% annually... you're losing money. Ben Bernanke is printing faster than you're earning.
I highlighted wind energy today. But I just as easily could have repeated what I told Unconventional Wealth readers six months ago and told you about Canada's big pension fund and its $50 billion foray into timber.
Or I could have detailed the slew of institutional investors that just made incredible moves to buy farmland spread across the globe.
But that's not my point.
My point is to show you that conventional assets and the strategies we've long used to take advantage of them have lost their luster. The largest investors have sounded the alarm and are bailing out.
Beta is dead. Long live alternatives.
From the Inside,
Aaron
Other Related Sources: