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Alternatives Playbook

Our outlook, asset class views, and allocation guidance for private markets and liquid alternatives investments. It leverages our institutional investment expertise, deep resources, and global investment platform.

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Q3 2024 alternatives outlook

With public stocks highly concentrated, overvalued, and at risk of a possible correction, in our view, private markets and liquid alternatives may help improve growth, enhance potential income, and diversify a portfolio.1 Private credit continues to favor lenders over borrowers with attractive all-in direct lending yields of more than 12%. Real estate credit can help diversify income with asset-backed yield in high-quality properties, and there's an attractive inventory of possible deals as bank lenders have pulled out of the market substantially. Private equity still faces headwinds with a muted transaction environment and aging dry powder and inventories; however, we see this changing as the financial environment continues to improve.2  In our multi-alternatives framework, we’ve upgraded private real assets to neutral. We believe we’re near a trough in valuations and have seen pricing and capitalization rates for core properties bounce back from recent lows.

Asset class views

After positive growth surprises in the first half of 2024, we assign a lower — but still elevated — risk of a recession within our multi-alternative portfolios, aligned with a soft and potentially bumpy landing for the global economy and markets. Overall, we maintain a neutral risk stance broadly favoring private credit and private equity that requires less debt to generate growth.

Private real assets outlook and positioning

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Private credit outlook and positioning

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Private equity outlook and positioning

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Hedge funds outlook and positioning

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Listed real assets and commodities

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Digital assets outlook and positioning

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Get an in-depth look at our alternatives Q3 outlook and positioning based on valuations, fundamentals, and secular trends.

Asset allocations to consider

Adding private market and liquid alternatives assets to an investment portfolio may be able to provide enhanced returns, volatility mitigation, diversification,4 and income potential.5 Advisors are looking to increase their allocation to alternatives according to research from Cerulli Associates, in partnership with the Investments & Wealth Institute (IWI).6 (See asset allocations below.)

Advisor-reported current asset allocations
Advisor-reported optimal asset allocations

Sample alternatives allocations

For those thinking about adding alternative investments to portfolios, consider our sample allocations. The actual allocations will vary based on a client's objectives, risk tolerance, comfort with illiquid investments, and how alternatives fit into their overall portfolio. We also provide suggestions on how to consider funding new alternatives allocations using traditional portfolio assets.

Asset class Sample allocation Liquidity scale Role in portfolio Funding source Related products
Private equity 20 - 30% Low Growth 100% equities N/A
Private real assets 20 - 30% Low Growth
Income
Diversification1
50% equities
50% fixed income
Invesco Real Estate
Private credit 20 - 30% Low Income
Diversification1
30% equities
70% fixed income
XCRTX
 
Hedge funds 10 - 20% Medium Diversification1 100% fixed income N/A
Listed real assets and commodities 3 - 10% High Growth
Income
Diversification1
70% equities
30% fixed income
PDBC
MLPTX
Digital assets 0 - 7% High Growth
Diversification1
80% equities
20% fixed income
BTCO
QETH

These sample allocations are recommended starting points for how to incorporate an asset class into an alternatives bucket. Of the 13.3% reported optimal allocation to alternatives, the above sample allocations provide percentages for allocating among the alternatives asset classes.

Get positioning for your equity and fixed income allocations in our monthly Portfolio Playbook

Alternatives at Invesco 

Diversify portfolios with alternative assets across public and private markets to achieve enhanced returns and mitigate risk.

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Footnotes

  • 1

    Diversification does not ensure a profit or protect against loss.

  • 2

    Pitchbook, 6/30/2024.

  • 3

    Invesco Real Estate, Bloomberg L.P., as of December 31, 2023. US-listed real estate performed a 20.6% average return, while U.S. equities performed 13.8% on average in the 12-month periods following the last Federal Reserve rate hike. US-listed real estate is represented by the FTSE NARIET All Equity REITs index which is a free-float adjusted, market capitalization-weighted index of U.S. equity REITs. Past performance does not guarantee future results.

  • 4

    Enhanced returns, volatility mitigation and diversification: Source: Invesco Real Estate.  Trailing 5-years of data, last 5 years of quarterly returns annualized 2019Q1-2023Q4, latest data available.

    Total returns and standard deviation (annualized) by asset class: Direct Lending  – 9.09% and 3.70; Private Real Estate Debt – 6.88% and 0.77; Senior Loans – 5.83% and 8.58; High Yield – 5.35% and 10.94; Private Real Estate Equity – 4.34% and 5.42; Corporate Bonds – 2.63% and 9.52; CMBS – 1.60% and 5.35; Investment Grade Bonds – 1.10% and 6.57; Treasuries – 0.53% and 6.89; U.S. Equity 15.68% and 19.72, respectively. Past performance is not indicative of future results. There is no guarantee that any trends shown herein will continue. Standard deviation measures a portfolio’s or index’s range of total returns in comparison to the mean.

    Diversification – Private Real Estate Debt Direct correlation to other asset classes: Private Real Estate Debt – 1.00, Direct Lending  – 0.32; Senior Loans – 0.19; High Yield – 0.17; Private Real Estate Equity – 0.29; Corporate Bonds – 0.08; CMBS – (0.09); Investment Grade Bonds – (0.11); Treasuries – (0.27); U.S. Equity – 0.21. Diversification does not guarantee a profit or eliminate the risk of loss. There is no guarantee that any trends shown herein will continue. Correlation is the degree to which two investments have historically moved in relation to each other.

  • 5

    Income Potential: Source: Invesco Real Estate.  Trailing 5-years of data, last 5 years of quarterly returns annualized 2019Q1-2023Q4, latest data available. 5-Year Average Distribution Yields: Direct Lending  – 9.99%; Private Real Estate Debt – 8.43%; Senior Loans – 6.74%; High Yield – 6.50%, Private Real Estate Equity – 4.23%; Corporate Bonds – 3.54%; Commercial Mortgage Bonds (CMBS) – 3.24%; Investment Grade Bonds – 2.81%; Treasuries – 2.23%. Past performance is not indicative of future results. An investment cannot be made into an index. There is no guarantee that any trends shown herein will continue.

  • 6

    Source: Cerulli Research: Advisors were asked. "Across your client portfolios, please estimate their typical alternatives asset allocation. How do you expect this to change in the next two years, and what would be the optimal asset allocation? (Optimal Asset Allocation: If there were no investment restrictions and clients had a strong knowledge of alternatives. Please estimate the optimal allocation for your core client segment.)" Other buckets provided were equities and fixed income. Survey conducted in Q2 2023.

  • 7

    Pitchbook LCD as of 5/31/2024

  • 8

    Bloomberg as of 6/30/2024.

  • 9

    Bloomberg commodities index as of 6/30/24.