Alternative investments often are added to portfolios in order to hedge against stock and bond market weakness, and to reduce the riskiness of returns. At least that’s what the textbooks say. Real-time market performance can often be another matter. The most popular alternatives include gold, real estate, commodities and, in recent years, Bitcoin. In 2023, only two of these alternatives are adding to returns: gold is up 12%, in part due to concerns over the U.S. debt market and the debt ceiling, while Bitcoin has soared 64%. Our real-estate benchmark, ETF IYR, is down 2% as the housing industry slumps, while our commodity benchmark, ETF DBC, is down 8% as inflation eases. Looking ahead, we think commodities and gold will remain in demand given the worldwide trend toward de-globalization, and are the best positioned of the alternative options. In our view, alternatives should constitute up to 2%-4% of portfolios, with copper and paper/corrugated packaging having the most exposure due to positive long-term secular trends behind e-vehicles and e-commerce. We think it is early to be adding volatile Bitcoin-related securities to our portfolios at this time. Though performing well this year, bitcoin lost 65% in 2022. We will consider an exposure to cryptocurrencies once the sector approaches total market capitalization of $5 trillion, or the regulatory outlook becomes clearer.
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