ROI of alternative investments - icoinic
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Franklin Feringa - Fundamental Analyst - Icoinic B.V.
Franklin Feringa
Author
Analist

ROI of alternative investments

Previous blogs posted on the Icoinic website have mentioned the importance of diversifying investments beyond traditional investments like equity. This blog dives deeper into the subject of alternative investments and gives an overview of how different assets have performed during the recent turbulent times and might add value to an investment portfolio.

Alternative investments

The assets cash, bonds, and equity are known as traditional investments. Alternative investments consist of all the other possible investments. The most well-known are:

  1. Hedge funds
  2. Private equity funds
  3. Real estate
  4. Commodities
  5. Infrastructure
  6. Cryptocurrencies
Characteristics

Alternative investments differ from traditional investments in a variety of ways. They are usually subject to limited regulation whereas the traditional investment market is highly regulated. More often than not, there is a lot less liquidity in alternative investments as well, although there are exceptions. Bitcoin has high trading volumes depending on the exchange you look at. Often, there is a lot less transparency and available data for potential investors with alternative investments. Because of this, a lot of these investments are mostly accessible by the wealthier investors. 

All of this leads to alternative investments to be less accessible and have less market efficiency. The illiquidity, limited accessibility, and lack of strong regulation results in an increased risk associated with these investments. That being said, this does not just create risk, but potential return as well. 

 

Icoinic Diversify alternatives

 

There are plenty of alternative investments that have little correlation with traditional investments. A lot of investors like to add such assets to their investment portfolio to lessen the overall risk. Gold is a good example of this as it has been a go-to commodity for a lot of investors and traders as a hedge on the equity market. It must be noted that a lot of alternative investments that are not strongly correlated with the traditional markets in “normal” times can suddenly become highly correlated in times of extreme market distress. 

ROI comparison

Due to the recent outbreak of the Coronavirus, many regions have imposed lockdowns that have put severe pressure on those economies. The pressure on economies, along with uncertainty about how the outbreak will progress, resulted in a lot of turbulence on the market. Therefore, it seems like a good time to compare the performance of a range of asset classes during this period to see just how well they performed compared to the regular equity market. The performance year-to-date (ytd), ending on the 22nd of May, has been plotted in a graph and contains the following assets:

  • S&P 500
  • Gold Spot
  • Silver Spot
  • WTI Crude Oil Spot
  • WTI Crude Oil Future
  • Vanguard Real Estate Index Fund ETF (VNQ)
  • Bitcoin
  • Icoinic Algorithmic Fund

Compared to assets Icoinic and alternativesAll of the assets experienced increased volatility in March, which was at the height of the Coronavirus panic. You would have lost money no matter which one you invested in. That being said, this strong correlation was only during the time of extreme market distress as expected. Since then, the correlation has diminished and the different assets went their own way. The ultimate YTD performance can be seen in the table below:

 

compare percentages icoinic

 

There is no surprise that the equity markets took a big hit with the S&P 500 being down over 9% since the start of the year. The real estate ETF along with oil performed even worse than that. Gold, widely seen as a safe haven in times of market distress, has performed exceptionally well. It appreciated over 14% despite the panic. Silver also outperformed the equity market, but still scored a negative 3.6%. Although Bitcoin initially saw a massive drop in value, it managed to climb back and is up almost 28% YTD.

The Icoinic Algorithmic Fund specializes in algorithmic trading of the large cryptocurrencies and aims to capitalize on market inefficiencies. The Icoinic Algorithmic Fund is strongly correlated with the Bitcoin price which comes at no surprise. But due to the strategy of profiting on inefficiencies in the market, Icoinic has managed to outperform all the above mentioned assets, as well as Bitcoin itself, by far.

Conclusion

Allocating capital to alternative investments can be a good way to de risk your overall investment portfolio. Especially Gold performed well from the more popular alternative investments. 

The recent market turbulence has showcased how Bitcoin can be of added value as it outperformed the equity market by about 37%. Icoinic’s ROI was even better than that and outperformed the equity market by 76% during the same period. It seems to become more essential to add some cryptocurrency investments to a well balanced portfolio, either by a direct investment or an investment through a professional third party. The recent performance proves this once more. 

Arthur Stolk