How are you hedging portfolios against the unwinding of stimulus?

CEO says investing in alternatives, like real estate and farmland, can provide protection as governments pay off debt through taxes

How are you hedging portfolios against the unwinding of stimulus?

Advisors should consider recalibrating clients’ portfolios and including more alternative investments as governments withdraw their pandemic economic stimulus and begin to look at how they’re going to pay for it, according to Raintree Financial Solutions’ CEO.

“There are a variety of things to consider for recalibration,” Peter Kinkaide, a portfolio manager, told Wealth Professional from his Edmonton office just before he spoke on the “Five Themes to Consider Recalibrating Your Portfolio For” at Raintree’s two-day online conference, which began yesterday.

Kinkaide said the five themes were COVID’s economic and financial symptoms, uncertainty about whether inflation is transitory or permanent, governments’ pandemic stimulus and how they’re going to unwind it, the coming taxes to pay for what they have already spent, and the fact that there are alternatives for portfolios.

“As governments try to unwind some of the stimulus that they’ve injected into the market and, at the same time, look to pay for some of the stimulus that has been provided, there are going to be potentially negative headlines,” said Kinkaide, noting the unwinding will be a particularly important theme from now until 2022.

He also wanted advisors to look at including alternatives in portfolios, given what’s happened in the U.S. equity market.

“There’s just sort of an acceptance that there isn’t an alternative and one must invest in equites if they’re not going to invest in fixed income,” Kinkaide said. “Not only is there a very clear alternative, being alternative investments, which we specialize in, but here are other markets and public securities globally that aren’t nearly as valued as they are today.

“The notion that there is no alternative is just plain wrong. Globally, there’s been a significant shift to integrating alternative investments into portfolios. So, we’d suggest that there’s something different in an allocation to private alternatives, and it might just be the right time.”

Raintree launched the conference to share both its – and its investment partners’ - stories in both portfolio management and alternative investments. It also wanted to educate Canadians on the fact that there are liquid stocks and bonds, and the private equity, private debt, and private real estate that it offers as portfolio potions.

“There is a shift to integrating alternatives in portfolios,” said Kinkaide “With inflation being a risk today, there’s some compelling evidence that real assets – real estate and farmland, for example – are reasonably well correlated to inflation. As goods grow in price, so should other real assets. So, if you’re concerned about inflation, integrating real estate and farmland could be a good hedge.”