Illustration: Chris Harnan
Wealth | Investing

Where to Invest $100,000 Right Now

Six experts offer timely ideas on the best places to put your money in today’s volatile markets.

Financial markets remain rife with uncertainty, but speculation is growing that the S&P 500 Index has bottomed.

Earnings season has so far delivered better-than-expected results from some big names, and the broad US market has gained since hitting a low in mid-June. That rally picked up steam last week after Federal Reserve Chair Jerome Powell said it might be appropriate to slow the pace of interest-rate hikes at some point, and said he doesn’t believe the US is currently in a recession.

It’s not easy to figure out where to put your money in this fast-changing environment, so we asked six wealth advisers and strategists where they would invest $100,000 right now. They didn’t always agree about their recommendations — which range from food security to genomics companies, from the small-cap sector to mega-cap technology plays — but they all concur that there are attractive opportunities in the current market.

When the experts were asked where they might personally invest a six-figure sum in something they’re passionate about, half of them said they want to travel — perhaps showing the pent-up pandemic demand for experiences. Other ideas ranged from bronze sculptures for their garden to agricultural ventures in Antigua.

For those interested in using exchange-traded funds to mimic the themes suggested by the experts, Bloomberg Intelligence’s senior ETF analyst Eric Balchunas shares his take on suitable proxies.

Before venturing into the markets, be sure that you have enough money in liquid investments so that you can ride out any prolonged downcycle in the economy and the stock market without needing to sell at a loss. Take a look at “The 7 Habits of Highly Effective Investors” to see if you can check off all the boxes.

2022 Q3

Victoria Greene, founder, G-Squared Private Wealth

The markets right now are skewed to higher risk and lower return, so if I had $100,000 cash I would start conservatively and work to move money into the markets over the next three months. I’d look at ultra-short individual Treasuries, or an exchange-traded fund like the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) or the First Trust Enhanced Short Maturity (FTSM) as parking vehicles for cash.

After that, I’d start dollar-cost-averaging into quality US large-cap stocks. Timing the market is never smart — often we get it wrong — so being disciplined and deploying a set amount of, say, $2,000 a week into stocks is smart in this type of market. With downside risk on the horizon, cash and high-quality short bonds let you take advantage of pullbacks.

With the strong US dollar, I want to focus on domestic stocks, as a strong dollar makes for a difficult situation with emerging-market stocks. I don’t like developed international stocks since I feel Europe and Japan are both in a weaker economic position than the US.

I’d focus on quality value — stocks that weather slowdowns well. I’d put cash into the Health Care Select Sector SPDR Fund (XLV) and the Consumer Staples Select Sector SPDR Fund (XLP) to start with, and add in the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) if we see steadying demand in energy markets. I’d also consider the Invesco S&P High Dividend Low Volatility ETF (SPHD) or the First Trust Morningstar Dividend Leaders Index fund (FDL) for high-quality, low-volatility US large-cap exposure.

Defense is the name of the game for now as I see it — it’s too early for tech, small-cap and emerging markets, though as we fall further, it will become more attractive to rotate into those areas. Keep an eye out for opportunities, but remember that value traps abound right now. There may be a reason that stock fell 70%, and it could certainly continue to drop even further.

How to play it with ETFs: A popular ETF to get exposure to high-quality stocks is the Invesco S&P 500 Quality ETF (SPHQ), said Bloomberg Intelligence’s Balchunas. The ETF holds the 100 highest-quality names within the S&P 500 Index based on return on equity, accruals ratio and financial leverage ratio. Top holdings include Apple and Visa. It has $3.4 billion in assets and charges a very reasonable 0.15%.
Another way to play from Greene: For the less prudent and more fun idea, I would spend it on a trip or two for myself, family and friends. After Covid lockdowns, experiences rank higher than belongings. Maybe charter a private jet and go to Vegas to stay at the penthouse suite of the Nomad or Bellagio? A few weeks in the south of France, or a getaway in Bora Bora? Either way, to travel and enjoy company of friends and family and disconnect is my goal. It doesn’t hurt if I can eat world-class foods and have some nice wines at the same time! The world is a big place — we should get out there and enjoy it.
Curtis Parry, chief executive officer, Unique Wealth

Historically, investors getting into private equity had barriers of entry, such as subscription documents, lockup periods, and maintaining the ability to meet capital calls. Using interval funds, which are logistically similar to open-end mutual funds, our clients don’t need to submit subscription documents, won’t have to meet capital calls, and every quarter we have an opportunity to recall our investment.

Ninety-five percent of companies in the US are private. We believe the funds we work with are on the cutting edge and are just at the beginning of what is to come. We work with bigger names, like Carlyle Group, but also with some smaller firms, such as Bow River Capital. Working with firms of different sizes lets us participate in deals ranging from large, oversubscribed ones to small diamonds in the rough. Some funds we use are more concentrated with 40 to 50 holdings and others, typically the private credit funds, have over 3,000 holdings.

We take a lesson we’ve learned from the public markets, which is the importance of diversification. In recent years tech has been, and continues to be, the hot space. While we love having exposure to the next Amazon or Tesla, we also value diversifying among the next big names outside of tech. Some of the private names include companies like Bass Pro Shops and Jaguar Land Rover.

Historically, private markets have shared a very low correlation to public equity markets. This allows us to smooth the ride for clients, especially in more volatile periods. With public equity markets being tougher this year, it has impacted valuations on the private space, affording an opportunity to invest in the names of tomorrow at yesterday’s prices.

How to play it with ETFs: There really are no ETFs for private equity, said Balchunas. The closest you can get is arguably micro-caps, because they are smaller and have less analyst coverage. The iShares Microcap ETF (IWC) is the most popular of the bunch and holds about 1,800 stocks. It has just under $1 billion in assets and charges 0.60%. 
Another way to play from Parry: I’m a huge Elon Musk fan. I would buy SpaceX with my $100,000 fun money — to Mars and beyond! Actions sometimes speak louder than words, though, and I have ordered a Tesla Cybertruck with a $100 deposit. Tesla is expected to start production in 2023 with deliveries occurring later next year. I’d like to travel to space in a SpaceX Dragon, but the current cost of that is $55 million.
Jerry Davidse, chief executive officer, Presilium Private Wealth

The S&P 500 has been down 20% or more over a six-month period eight times since World War II. The first six months of this year were the latest example. Every time this has happened in the past, the market was positive for the next six months with an average return of 21.5%. Furthermore, in all seven previous times, the market has been positive for the following 12 months with an average return of 31.4%.

We follow a disciplined rebalancing strategy for our clients and have been adding to growth equity ETFs during this recent downturn. We rebalance accounts whenever the S&P 500 is up or down 5% from our last rebalance. We’ve added most to the broad US equity ETFs that are down the most this year, including Vanguard Growth (VUG), Vanguard Mid-Cap Growth (VOT), and Vanguard Small-Cap Growth (VBK).

We’ve successfully used this strategy during down markets and periods of increased volatility over the past 20 years. A market downturn can be a wonderful time to invest cash and we believe investing in simple, low-cost, diversified ETFs will give you the best results.

As well, we are always optimistic and believe that the world is going to continue to become a better place each year, so we especially like sectors that include innovation that will improve our futures. A few examples are the Blackrock Future US Themes ETF (BTHM), the iShares Virtual Work & Life Multisector ETF (IWFH), and the iShares Robotics & Artificial Intelligence Multisector ETF (IRBO). They’re down significantly from their highs and are a great opportunity for long-term optimistic investors.

How to play it with ETFs: Buyers of the BlackRock Future US Themes ETF should be aware that the fund has about 27% of assets invested equally (about 9%) between three companies -- Apple, Alphabet, and Microsoft, said Balchunas. IWFH is a little more evenly distributed with its holdings and has been hit extremely hard by the market downtrend, as has IRBO and other growth-tilted funds. Robotics and artificial intelligence ETFs have drawn a lot of investor interest in the past few years, and there are 11 robotics ETFs in the US with $4.5 billion in assets.
Another way to play from Davidse: Our children are 8 and 6 years old and I would invest the entire $100,000 in traveling with them. Our family loved to travel and experience new places together before the pandemic and we would like to start again. My wife creates a hardcover picture book of each of our trips and they are my prized possessions. We like to purchase one piece of artwork in each new country from a local artist. We have a giraffe sculpture from South Africa, hand-painted tiles of a temple in Cambodia and a panoramic photo of Santorini. We have been to 18 countries with our kids but there are so many more places on our list we want to visit!
Nadia Lovell, senior US equity strategist, UBS Financial Services

The war in Ukraine will have a lasting effect as governments and companies become more focused on safety and security. When we think about security, we’re thinking beyond traditional military and defense spending — about food security, energy security and cybersecurity.

Russia and Ukraine are the breadbasket for Europe. The war has led to destruction of global trade, causing a spike in agricultural commodity prices. Historically, when there’s been disruption to food supply chains, particularly with grains, it has led to civil unrest, especially in lower-income countries. That further highlights the need to diversify supply sources and improve agricultural yields — through automation, better equipment, bio-nutrients or seed technology. Opportunities range from companies involved in crop science to those in machinery, food waste reduction and cold storage. Look for quality companies that are innovators, have solid management teams and have a good return on invested capital.

In energy, ending Europe’s dependency on Russian energy will require a lot of investment and time. It likely accelerates the longer-term trend to reduce the world’s dependency on fossil fuels. Companies in green tech, clean air and energy efficiency are among those positioned to benefit.

Near-term we expect increased spending in traditional fossil fuels to help alleviate supply-demand imbalances. Beneficiaries of that include some of the big oil-services companies and exporters of liquid natural gas that are executing well. You want companies that generate good free cash flow, as well as returning cash to shareholders. Given current commodity prices, free cash flow yield for energy companies is in the low teens — more than twice that of the S&P 500. Dividend yield for some energy companies is in the high single-digits versus the S&P 500’s 1.6%.

In cybersecurity, the need to protect data and systems continues to grow. With heightened geopolitical tensions, the greater the need for your data security to be like Fort Knox. The cybersecurity industry is quite fragmented, so selectivity is key. Look at the best-in-class companies, with a focus on robust software that is agile and adapts quickly.

How to play it with ETFs: The First Trust Natural Gas ETF (FCG) holds companies that are involved in natural gas in some way, said Balchunas. Most of the portfolio is in equities but a small slice is made up of master limited partnerships. The ETF holds about 50 names, has $700 million in assets and charges 0.60%.
Another way to play from Lovell: I’d invest in Antigua and locally sourced food. I’m originally from this small Caribbean island known for its pristine beaches. The economy is highly dependent on tourism, which got crushed during the early stages of the pandemic and is still recovering. Some foods got scarce during the pandemic (like chicken, eggs, etc.), as they are largely imported. There’s since been a push to locally source some foods. My brother, who still lives there, and others have since started a poultry farm. I’d invest the money in them to further expansion, to help produce stable, fresh and localized food sources.
Lori Calvasina, head of equity strategy, RBC Capital Markets

My main message is to be picking around the secular growth part of the market, and get ready for the recovery. If you compare valuations in defensive sectors — health care, consumer staples, utilities — against growth stocks, they’re at peak valuations. You tend to see that at market bottoms. If we haven’t seen the bottom, we’re close.

Now the question is: Do you have enough exposure to sectors that do well when recession fears are fading? That’s a one- or three-year call. What tends to work well coming off bottoms is financials, mega-cap tech and small-caps.

Financials tend to underperform in drawdowns in recessions, but midway through tend to pivot and do very well coming off the bottom. As earnings season started, financials were one of the cheaper sectors compared to the S&P 500. When I talk to bank analysts, they say if we can avoid the more dire economic scenarios, banks are in a very strong position.

In tech, I’m talking about boring mega-caps — profitable semiconductor, software, hardware and equipment companies. With inflation high, the macroeconomic outlook choppy and labor tight, technology tools are what companies used to improve productivity and get through crises in recent years, so there should be some resilience in these business models. Tech also tends to underperform in drawdowns associated with recessions, and then pivot coming off of the bottom mid-recession. Valuations aren’t as compelling as in financials, but you’ve pulled the pandemic froth out and have reasonable valuations in a sector where you don’t usually see them.

With small-caps, recessions typically provide buying opportunities. The sector peaks ahead of recessions, underperforms in recessions and in mid-recession starts to outperform large-caps. Small-caps peaked relative to large-caps in March 2021. Now, small-caps look like they’re baking in a recession. The weighted median price-earnings ratio of profitable companies in the Russell 2000 typically bottoms out around 11 to 13. It was about 11.3 at the mid-June low in the market. Most sectors look reasonable or very cheap if you look at PE ratios relative to history, with more compelling valuations in financial and consumer discretionary.

How to play it with ETFs: An ETF that holds the most profitable, cash-rich small-caps is the Pacer US Small Cap Cash Cows 100 ETF (CALF), said Balchunas. The filter for cash flows has allowed CALF to outperform the iShares Russell 2000 ETF (IWM) so far this year. CALF has nearly $1 billion in assets and charges 0.59%.
Another way to play from Calvasina: My fun times revolve around my kids these days and I’d probably take my kids traveling. During the pandemic I would put my oldest (now almost 7) to sleep at night with a little routine about how he’s the cutest little boy in the whole wide world (something I had started to say to him when he was a baby) and we’d list all the places he’d traveled to before the pandemic hit, and then at the end when he was stalling for more time we’d list all the places we want to go together. He really wants to go to Paris to visit the Eiffel Tower, and we’ve promised we will take him to Antarctica one day (his dad and I were supposed to go there the year he was born). My 2-year-old is not nearly as well traveled as his brother was at his age — my oldest was on 13 planes by the time he was 6 months old — so we have some making up to do there.
Charlie Dunn, chief executive officer, Intergy Private Wealth

There’s a lot of buzz around things like autonomous vehicles, electric vehicles and artificial intelligence in the emerging tech sector, but an area that’s really interesting and a little overlooked because there is controversy around it, and there should be, is what’s going on in the field of genomics.

There are exchange-traded funds dedicated to genomics research — the Ark Genomic Revolution ETF (ARKG) is one — and what comes out of these companies could be as revolutionary to our world, if not more, than electric vehicles and AI. So it’s worth adding it to the list of emerging tech to keep an eye on. It’s important for an investor to consider whether they have ethical aversions to some of the things that are in that space, like gene editing.

I’d advise a funds-based approach rather than try to pick an individual company because it spreads the risk around. Frankly, that’s important in any disruptive sector like this — it’s too much burden for an individual to do due diligence on one company and make a truly informed decision. So seek out either active ETFs, or mutual funds, or separate managed accounts with managers who have a proven track record in emerging tech.

Also important in this sector because it’s so controversial is to look at what areas of genomics a fund is invested in. If you have an aversion to gene editing, you’d want to avoid a fund that will give you exposure to that, and find one that focuses more on gene therapy or just DNA sequencing. ARK does invest in gene editing, so you can avoid that, or at least know what you’re owning. The flip side is that being an absolutist in any way for the most part is bad, so pay attention to the concentration. If only 2% of the fund is exposed to gene editing, that’s not very meaningful.

With any kind of alternative asset, generally speaking I say put no more than 5% to 10% of a portfolio in that, and really no more than 2% to 5% in something as specific as this.

How to play it with ETFs: There are now multiple ETFs that invest in genomics, said Balchunas. ARK launched the first one, and no doubt the Ark Genomic Revolution is the most popular, he said. It holds a mix of biotech, health-care product and services companies. The ETF has $2.8 billion in assets and a fee of 0.75%. For those looking for a slightly cheaper option, Balchunas points to the iShares Genomics Immunology and Healthcare ETF (IDNA), which charges 0.47%.
Another way to play from Dunn: My wife is an artist, and with $100,000 we might buy some art — paintings or sculpture. I’ve always wanted to have permanent sculptures installed in our backyard, and if you are perusing art galleries it is very expensive to buy bronze sculptures and the like. For paintings, I’m drawn to landscapes that are a bit ethereal, like something you’d see in a dream. We buy a lot locally to try and support our local arts scene in Colorado Springs. We aren’t Denver, and we aren’t Santa Fe, but there’s an amazing community of women who are gallerists here and are changing the face of art in Colorado Springs.

2022 Q1

Anthony Roth, Chief Investment Officer, Wilmington Trust

This is not an easy environment to invest in, because we’ve had all of this artificial asset inflation. In the public markets there are only a few things that are really attractive. There is developed-market equities outside of the U.S. — particularly in Europe and to a lesser degree Japan — as well as variable rate senior bank loans, which aren’t very sexy but could be interesting now.

In Europe, you see an economy that did not benefit from the massive fiscal stimulus we had in the U.S. They still have to catch up from Covid in terms of economic activity. But their inflation problem is much less severe than ours, and that’s really important. Also, there are more economically sensitive stocks in Europe, more value stocks, because they don’t have the big tech stocks that dominate the U.S. index. That’s another reason why they should be poised for a cyclical economic recovery. They also pay better dividends — around 2.5% to 3%, where in the U.S. it’s only 1.5%.

My other idea is bank loans. Banks make variable-rate loans, then sell them off and they end up in mutual funds. On higher-quality bank loans, you get a yield in the 3.5% range, and as rates go up, these rates go up with them. We don’t expect the credit environment to deteriorate, and we’re not seeing a recession. This is typically for clients who aren’t at the highest tax rate, because interest on bank loans is taxable at ordinary rates. These loans are another nice opportunity in an area where we’re trying to be somewhat defensive because of this big headwind we have in terms of the Federal Reserve reversing its posture from being so accommodative.

How to play it with ETFs: The fastest-growing bank loan ETF, said Bloomberg Intelligence senior ETF analyst Eric Balchunas, is the SPDR Blackstone Senior Loan ETF (SRLN), which doubled in size during the last year to nearly $10 billion in assets. This actively managed ETF has outperformed peers and has a yield of about 4.5%. That said, it is a little pricey, with a fee of 0.70%, Balchunas said.
Another way to play from Roth: There is a Lucian Freud etching that I have wanted to buy for 15 years and is probably in the $100,000 price range. I love this piece and the last time it came up for auction was six or seven years ago. I subscribe to, and it emails me every night about artists I like and any new items coming up. One morning I know I’ll wake up and see this etching. It’s not one of the more typical Freuds, but I don’t want to share too many details because I don’t want to draw attention to it.
Katherine Gordon, Senior Investment Advisor, Sightline Wealth Management

We like to be in sectors that benefit from rising rates and can push through costs to consumers in the current environment. One of those sectors is energy. We don’t believe that the big push to sustainable, carbon-free power through renewable energy sources, while admirable, is ready for prime time. The infrastructure required to capture, store and transmit clean energy is significantly behind the dream of a fossil-free energy world, especially in emerging markets.

We believe the transition to a carbon-free environment will take longer than anticipated. Coupled with falling reserves, lack of investment in discoveries and increasing demand, we think upward pressure on oil prices will continue for some time. The surviving companies of the last oil rout, with current oil prices, are generating significant free cash flows to pass along to investors, increasing dividends. With rising oil prices, oil companies have strengthened their balance sheets, and many enjoy 5% and higher yields. Some of the attractive mid-stream oil companies specializing in the transportation and storage of oil products have yields approaching 7% to 8%.

Another area we suggest for consistent and stable income — and that could be considered as a bond replacement — is real estate investment trusts. We like multi-family housing, health care and industrial REITs. With more office staff expected to work remotely, we stay away from office REITS and student housing REITs.

How to play it with ETFs: Energy ETFs are in the midst of a huge comeback, Balchunas said. For those looking for diversified, low-cost exposure, the two most popular ones have been the Vanguard Energy ETF (VDE), which holds 107 energy companies for a fee of 0.10% and the Energy Select Sector SPDR Fund (XLE), which holds only 24 companies but is very liquid, so gets used by traders mostly, Balchunas said. XLE just lowered its expense ratio to 0.10%. One note of caution: Both of the ETFs are up about 74% over the past year.
Another way to play from Gordon: With changing climate affecting crop yields, it’s important to invest in our health. Since I enjoy eating fresh vegetables and live in a northern climate, I’ve experimented with growing vegetables hydroponically indoors in the winter and outside in summer. I’ve always dreamed of taking this to the next level and investing in a commercial-grade system. This would not only produce fresh fruits and vegetables for my family and friends, but would also provide a great source of investment return. I would invest in land, equipping a greenhouse for the winter months using Verti-Gro’s or Hydro-Stack’s tower systems. In addition to providing our family with fresh vegetables year-round, this hobby could turn into a profitable business that serves local restaurants and grocery stores.
Scott Bills, Chief Executive Officer, Nilsine Partners

Here’s a strict income play, which won’t provide more upside than the coupon: Customized income notes. They can make a lot of sense for people who otherwise would look at traditional fixed-income products, and think that a high yield equals a good bond. I don’t think they realize they are taking on more risk than they should. Similarly, some people think stocks with high dividend yields must be good, but sometimes that just means a company’s share price has been beat up.

Customized income notes have been around a long time, and are more common in Europe. They can be tied to different indices, equity or bond. The indices don’t have to go up, but the coupon rate could be 6% to 9%. You can create a note that says as long as the S&P 500 is not down more than 30% over the next 30 months you’ll get monthly or quarterly coupon payments with a 7.75% annual yield. In some cases, if the note dips below the threshold level you may miss that particular payment. As the underlying index improves above that level, the note resumes payment.

With inflation where it is, I like equity markets more than bond markets — and more than cash for sure. The notes are only as good as the issuers, who are large, well-known institutions. To price and fill these notes, we use technology from a group called Halo. You can lay out parameters customized for your client and get real-time bids from all of the major banks.

I also like private placements. You can help entrepreneurs, and it helps you get uncorrelated returns to traditional stocks and bonds. There’s a big push for energy efficiency within the commercial multifamily housing sector, and I see opportunities there.

How to play it with ETFs: For customized structures like this, the ETF market is probably not the right place to look since the products are one-size-fits all, says Balchunas. That said, for someone looking for yield outside of bonds, there has been interest in covered-call ETFs, which sell call options on a certain index in order to generate income. A buyer of call options gets the right to buy a certain security at a certain price over a set time; a call is “covered” if the seller holds the equivalent amount of shares in his or her portfolio. The catch? You give up much of your upside. One ETF like this is the Global X NASDAQ 100 Covered Call ETF (QYLD), Balchunas said. It yields 14% but has severely lagged the Nasdaq 100 over the past few years — although this year it is doing better because the Nasdaq 100 is down. It charges 0.60%.
Another way to play from Bills: I’m a family-first guy with young kids, and I like to educate my kids about investing in the public markets, so I’d probably work with them on investing in the stocks of companies they know. I’d also pick a couple of great trips to take my family on. The Virgin Islands and Hawaii are two of my happy places. The water is so pristine and you can sit on a catamaran. A few weeks disconnected from the internet, with family, would be money well spent.
Morgan Tarr, Director of Advisory Services, Delegate Advisors

With relatively high equity valuations and the potential for rising interest rates (combined with low current yields) rendering public equities and fixed income relatively unattractive, we have been recommending that our clients put cash to work in private REITs.

Generally, REITs offer investors a higher yield than fixed income with lower interest-rate risk. Investors may also benefit from appreciation in the underlying value of the properties owned by the REIT. Additionally, real estate offers a degree of inflation protection as rents tend to rise concurrently with prices.

We have targeted REITs that focus on multifamily and industrial (e.g., logistics) real estate in fast-growing markets with economic tailwinds such as Raleigh-Durham in North Carolina (our home), Nashville, Denver and Austin. We favor private REITs relative to public REITs, because private REITs are less correlated with the broader public-equity markets and, as a result, are generally less volatile.

How to play it with ETFs: There is no multi-family REIT ETF to speak of yet, Balchunas said, although one is due to launch in mid-February under the ticker HAUS. There is an industrial REIT ETF called the Pacer Benchmark Industrial Real Estate SCTR ETF (INDS), which tracks public REITs that get their revenue from industrial real estate activities such as warehouse and self-storage facilities. Unlike many REIT ETFs, INDS doesn’t yield a lot, though — 1.4%. It has a fee of 0.60%.
Another way to play from Tarr: During the pandemic, my family adopted many animals: chickens, abandoned sheep, cats, a dog, a bunny and fish — until the cats tried to eat them. We also got an unusual group of pets: worms! We built a worm bin and watched them quickly turn food scraps into rich soil. We fed the chickens peelings from our carrots and potatoes and used their droppings to nourish our plants. The sheep and rabbit’s discarded straw and hay went into the worm bin. Our three girls loved participating in this cycle of regenerative agriculture and I’m passionate about investing in companies that support sustainable food and agriculture. So I’d consider investing in a customized portfolio at Ethic, a company that offers separately managed accounts that use filtered environmental, social and governance (ESG) data.
Michael Durso, Chief Investment Officer, ShoreHaven Wealth Partners

We’re having a lot of conversations about crypto. If you have the proper risk tolerance, there can be a lot of benefits to allocating 1% to 5% of your investable net worth in crypto. Cryptocurrency has a reasonably asymmetric risk profile: you put 2% in bitcoin, the most you can lose is 2%, but in 2021 bitcoin was up around 57%, so you’re adding almost 1.5% return to your overall portfolio from that small portion. Of course, there will always be volatility in that space until it’s more seasoned, but if you’re investing in a taxable account, there are potential tax-loss harvesting opportunities as well.

We use a separate account manager, Eaglebrook Advisors, which can do systematic tax-loss harvesting — automatically booking losses to offset capital gains elsewhere in portfolios. If a token price drops 10% below a client’s cost basis, the SMA will sell it and immediately repurchase it without running into the wash-sale rule. [The wash-sale rule says investors can’t take a loss on the sale of a security in their taxes if, within 30 days, they buy a “substantially identical” security.] It can do that because under current IRS rules, cryptocurrency is classified as a collectible and not a security. This classification is currently under review and could go away in the future.

For clients looking for income, we’ve leaned more on dividend-focused equity ETFs, as well as some areas of private credit and mutual funds where you can get alternative income exposure. Funds we’ve used include BlackRock’s tactical opportunity and systematic multi-strategy funds. The multi-strategy fund’s core is a long-only, multi-sector fixed income exposure, and it aims to provide credit exposure with less downside risk than traditional high yield. The tactical opportunity fund looks to provide uncorrelated returns to traditional equity and fixed income markets. As of Feb. 11, the tactical fund was down 0.21% and the multi-strategy fund was down -2.1%.

Our goal as advisers is to protect as much on the downside without sacrificing too much return on the upside. These products provide buffers for when markets get volatile, as we’ve seen recently. In good times, you may not keep up with the S&P 500, but if the market is down 10% and your portfolio is down 7%, you’ll be in a better position to rebound than if you’d ridden that full market wave.

How to play it with ETFs: There are no private credit ETFs and/or spot crypto ETFs (yet), but there are dividend-focused equity ETFs, Balchunas said. One that has a good yield and a low cost is the SPDR Portfolio S&P 500 High Dividend ETF (SPYD), which tracks the 80 highest yielding companies in the S&P 500, and is overweighted in sectors such as REITs and financials. It yields about 3.6%, which is triple what the overall S&P 500 yield. It has a very low fee of 0.07% which means you get nearly every drop of that yield, unlike in mutual funds where the fee can confiscate much of the yield.
Another way to play from Durso: Since my career is so leveraged to the financial markets, I’m always looking for private businesses and opportunities to invest in that aren’t tied to the markets. That led me to invest in New York City-based bagel company Black Seed Bagels. If another uncorrelated business opportunity came up, I might put some money into that. My wife and I also want to go to Antarctica, and we want our two children to start traveling early and often — they are 2 and 4 — so we’d plan some nice long trips with them.

2021 Q3

Michael Faust, President, Bailard Wealth Management 

People who are diversified in stocks and bonds may have underrated the value of private commercial real estate. The headline news for commercial real estate is that no one is going back to the office. But the asset class is much more diverse than offices and offers other benefits.

Private real estate includes office space, apartments and industrial real estate. It’s a less volatile asset that moves differently than public real estate and stocks and bonds, to some degree. It also does quite well when stocks are falling and has a more attractive starting yield than bonds. The income component in the benchmark index for private real estate funds, the NCREIF Fund Index-Open-End Diversified Core Equity Index, has been about 4% in recent periods and nearly 7% since 1978. We think having some exposure to real estate all the time is good, and our clients typically have 10-15% in it.

The question you want to ask is: Are there times when you personally want to be long less-liquid assets — are you being paid to take on the less liquid nature of an investment? With private real estate I think you are. That said, of course all investments have the risk of loss.

Some people will say that they already have real estate investments. But these folks are typically talking about investing in their own backyards. When you go into one of these funds, you get national exposure. We have our own real estate fund for accredited investors and though we’re based in the Bay area, we have a lot of exposure in the Heartland.

Knowing the mix of real estate food groups in a fund is important. As an example of how these funds invest, Bailard’s fund is over 40% invested in multifamily properties, with about 20% each in office space and industrial property types and the remainder in retail, data center and development projects. By geography, the largest slices of the pie are in the Southeast, Pacific and the West North Central region, which includes cities like Minneapolis and St. Louis.

How to play it with ETFs: Bloomberg Intelligence’s Balchunas says while there is no way to invest in private investments via ETFs, for those looking for exposure to commercial real estate but who don’t want just the big, publicly traded real estate investment trusts (REITs), the Invesco S&P 500 Equal Weight Real Estate ETF (EWRE) could make sense. It assigns each real estate stock an equal weighting, which means it has more of a tilt to the smaller, less liquid names. EWRE has easily outperformed most market-cap weighted REIT benchmarks and comes with a fee of 0.40%.
Another way to play from Faust: I’m really interested in the Faroe Islands, which are due north of Scotland and halfway between Iceland and Norway. I’ve traveled there and it’s on my list to return to later this year. The population is about 50,000 and the islands are a part of Denmark but have their own language. It’s really interesting how they’ve kept their culture. The islands are famous for underground, underwater sea tunnels that connect the islands and there is really interesting artwork in there. You can hike, there’s good fishing, and it’s great landscape for photography.
Eric Branson, Director of Investments, Cyndeo Wealth Partners 

We’re putting client money in the Millennium USA HedgeFocus Fund, a multi-strategy fund of funds. Millennium Management has a very, very long and solid track record. Their annualized return since 1990 is 14% and the worst 12-month rolling net return was in 2008 and was -3.5%. You don’t see that very often, and this fund doesn’t open up very often. But it’s open right now.

Millennium has a very disciplined process of finding new talent and firing bad talent. It’s a constant process. It gets good talent and if they are good, they stay. If they lose ground to their peer group, they’re gone.

Millennium describes the fund as having “a market neutral, multi-disciplinary approach,” with strategies that include relative value fundamental equity, event-driven, statistical arbitrage, and quantitative strategies, fixed income and commodities. The largest percentage is in fixed-income now, at 31%.

The fund doesn’t move with the broad stock market. In March 2020, when the pandemic hit the globe, the fund was down 95 basis points. That was its only negative month in 2020. That’s what this fund is for — it’s your weathering-the-storm injection into your portfolio. It’s not going to be the home-run hitter when tech stocks are going through the roof, but you are not going to be sorry you owned this thing when the market takes a hit. We wouldn’t want to have this go above 10% of a client’s portfolio; typically it’s between 2-5%.

How to play it with ETFs: The closest thing to a multi-strategy hedge fund in the ETF world is the IQ Hedge Multi-Strategy Tracker ETF (QAI), said Balchunas of Bloomberg Intelligence. It uses other ETFs to replicate the returns of a multi-strategy hedge fund of funds, with strategies including global macro, long-short, fixed income and event-driven. The ETF is only partially hedged however, so may move a little more like the market than a typical hedge fund. The fee is 0.78%.
Another way to play from Branson: I don’t collect, but we’ve seen a significant increase in clients wanting to collect classic cars. Many of our clients travel to different auctions and some even race vintage cars. If done correctly, it can be a lucrative hobby. Personally, a few years ago my wife and I were encouraged by a guy who said not to be afraid of taking money from the savings bank to put in the memory bank. The two of us and our son love Disney cruises — we’ve gone on them all around Europe. Disney has new ships coming out and they’ll have cruises in Asia so we’re looking forward to that once the globe opens up.
Melissa Weisz, Wealth Advisor, RegentAtlantic

We have a large-cap portfolio of around 100 individual stocks that rank well among environmental, social and governance (ESG) criteria relative to their peers. Climate change and movements for social justice, along with the proliferation of available ESG metrics, are raising the profile of companies that are good corporate citizens.

I like the intersection of cyclical stocks with strong ESG scores given the economic strength and robust corporate earnings expectations coming out of the pandemic. Bearing in mind uncertainty and changing expectations given delta variant news, Linde Plc (LIN) checks all of the boxes as a cyclical stock in the materials sector. Linde is a leader in industrial gases and in developing green hydrogen, which can produce energy with zero carbon emissions. This segment of the alternative renewable energy sector is poised to boom with President Joe Biden’s goal of decarbonizing the electric grid by 2035.

Toyota Motor, Honda Motor and Hyundai Motor have already begun developing hydrogen fuel cell electric vehicles. The Toyota Mirai, currently available in California, can be charged in five minutes at a hydrogen pump with a range of 402 miles between refueling.

For those who can’t build a custom ESG portfolio, the iShares ESG Aware MSCI USA ETF (ESGU) is the largest socially responsible ETF. The iShares U.S. Basic Materials ETF (IYM) provides more direct exposure to basic materials but lacks the focus on ESG issues.

How to play it with ETFs: Bloomberg Intelligence’s Balchunas said that while the iShares ESG Aware MSCI USA ETF (ESGU) is the biggest ESG ETF, be warned that it looks a lot like the S&P 500 Index and owns stocks such as Exxon Mobil, which some ESG investors may be surprised to see. It has a fee of 0.15%. For those looking for slightly more pure ESG exposure, the iShares MSCI KLD 400 Social ETF (DSI) will eliminate many of those types of names without beefing up too much concentration in any one sector. DSI has a fee of 0.25%, Balchunas said.
Another way to play from Weisz: I appreciate beautiful jewelry and gemstones. Gemstones have historical and cultural significance, and I enjoy learning about the purported metaphysical properties of different stones. Sapphire, my birthstone, traditionally symbolizes nobility, truth, sincerity and faithfulness, according to the Gemological Institute of America. Gemstones and even lab-grown diamonds are garnering favor with millennials over concerns about the ethical sourcing of diamonds. Jewelry prices typically increase along with precious metals and stones long-term, and designers such as Cartier and Harry Winston, along with antique jewelry, tend to retain the most value.
Jennifer Foster, Co-Chief Investment Officer, Chilton Trust

One area we’ve spent a lot of time thinking about, largely because of the pandemic, is the healthcare space. We’ve seen engagement by consumers for information and access to vaccines. We’ve also seen a mobilization of healthcare services take place in a very local and convenient way.

We want to lean into healthcare services companies that are really focused on this point of convenience. That got us thinking about healthcare service insurance companies. One company we like is in the growth bucket, and the other is in value bucket.

The growth company is UnitedHealth Group. For a long time it’s demonstrated really strong execution and returns in its own business and in returns to shareholders. Part of the reason it’s been such a high-quality company is that almost 50% of its business is tied to healthcare information technology — they have data that comes from their Optum business, which consults with corporate clients on health-care costs. The other 50% of the firm’s business is healthcare insurance.

Technology and data are tools to help bring costs down, and UnitedHealth can make really well-informed decisions on their healthcare services products. Their price-earnings multiple is at the higher end of their valuation range, so the returns from here are more in the mid-teens, but it’s just a safe bet in many ways and they are leaning into telehealth.

A stock that’s more on value side with a lot more upside if it executes is CVS, which merged with Aetna almost three years ago. The two companies have a lot of digital knowhow, and they, too, are leaning into telehealth and finding how well it delivers for certain areas of care, specifically mental health care but also dermatology and other areas.

CVS is reentering the Affordable Care Act arena with a product at a low price point for the individual market, which is the hardest area to serve profitably. If it works, it’s an exciting testament to the idea of pulling digital capabilities, healthcare knowledge and reach into a consumer-convenience package. We like to look at average 10-year price-earnings multiples and the company is trading well below its 10-year multiple.

How to play it with ETFs: Bloomberg Intelligence’s Balchunas said the exchange-traded fund with the most exposure to health care providers and UnitedHealth is easily the iShares U.S. Healthcare Providers ETF (IHF), which tracks companies engaged in health care, facilities and insurance. The ETF has 22% of its portfolio in UnitedHealth. The fee is 0.43%.
Another way to play from Foster: My comfort zone is to evaluate personal investments like I do professional ones. Because of the pandemic — and because I’m staring at the prospect of being an empty nester — I’m starting to think about investing differently. I focus on what I can do that’s going to bring some emotional return, some joy, because it’s been a tough year. So we’re going to buy a boat. It’s probably one of the worst things you can do with your money if you don’t have the overlay of an emotional return. But the purchase will bring us back to a hobby we enjoyed before we had kids.
Douglas McKeige, Tiger 21 member, private investor, editor-in-chief of CAPM2.0 (The Climate Asset Pricing Memo)

Climate change is slapping us in the face, and almost every element of the U.S. economy will need to be revamped. A starting point is the electrical grid. The solution seems to be solar power and wind power combined with batteries and a restructuring of the grid so we can pull power from where we have sun and wind to places we don’t.

I’ve thought about putting money into hedge funds that focus in this area. But they have to short something to dampen the volatility of their returns. When you’re trying to invest in this huge transition, you should just be long and suffer through the volatility, and not give up 35-40% or more of the overall return you could get by being long equities yourself.

Publicly traded clean energy stocks are expensive and in many cases quite frothy. But when you find a huge macro tailwind on an asset class like this it just tends to work and you make money. An area that’s a little less appreciated is the sector that will rebuild the grid in the U.S. This will create many opportunities and these companies aren’t as well known. They include MYR Group (MYRG), MasTec (MTZ), and Quanta Services (PWR).

When it comes to solar and batteries, the challenge is that most of these names are Chinese and aren’t easily traded through U.S. brokerage accounts. Therefore, my suggestion is the Global X Lithium & Battery Tech ETF (LIT) and VanEck Vectors Rare Earth/Strategic Metals ETF (REMX). I’m not an advocate of owning Chinese equities in general but because they are so far ahead in solar and battery manufacturing relative to anything you can access in the U.S., they’re a must-have.

How to play it with ETFs: Beyond McKeige’s ETF suggestions, which have fees of 0.75% (LIT) and 0.60% (REMX), respectively, Bloomberg Intelligence’s Balchunas points to the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index (GRID), which is basically a theme ETF dedicated to making the grid smart and clean. It holds three of the stocks mentioned above and comes with a fee of 0.70%.
Another way to play from McKeige: I built a net negative-energy house and have an app that tells me how much power I’m producing at any minute of the day. I’m looking to take as many things as I can that run on fossil fuels and run them on electricity. That means an electric bicycle, electric weed whacker, electric chain saw and a robotic, electric lawn-mower. Consumers have been using robotic lawn mowers for years in Sweden. They mow the lawn almost every day so the grass they clip at every single swing is about a tenth of an inch and just drops to the ground, mulching immediately. I’ve thought about buying a high-performance electric motorcycle from Zero Motorcycles, but don’t tell my wife.
Michael Leverty, Founder, Leverty Financial Group

Although most of our clients’ capital is invested in public markets using low-cost mutual funds and exchange-traded funds, we see the private market, or non-publicly traded investments, as a compelling way to diversify. The number of U.S.-listed public companies has been cut in half over the last two decades, with over 95% of U.S. companies now controlled through private capital. More growth and value creation of a company is being captured by private investors, and those companies are staying private longer compared to early-stage initial public offerings.

We believe there are attractive opportunities in the triple-net-lease and private equity direct-lending space to help enhance the income component of a portfolio. (Triple net leases require a commercial tenant to pay rent, property tax, insurance premiums and maintenance on a property, usually in exchange for a lower rent.) However, diversification plays an important role in both public and private investments. Therefore, we prefer private equity funds with a basket of holdings versus a direct investment into a single company within the target sector.

We look for funds with seasoned management teams. It’s the skill of those key players that can have some of the greatest long-term impact on the underlying companies and ultimately the fund. Understanding a given fund’s redemption terms is also key to ensuring the opportunity is right for you. Investors can get hung up on liquidity risk, but when allocated appropriately in a portfolio the outcome can often be worth the wait.

How to play it with ETFs: While no ETF can capture the private markets since they only hold public equities, one that is in the spirit of this is the NETLease Corporate Real Estate ETF (NETL), said Balchunas. It tracks companies that derive at least 85% of revenues from real estate operations in the net lease real estate sector. NETL’s fee is 0.60%. 
Another way to play from Leverty: As a hobby investment, I like farmland. Having grown up on a family Christmas tree farm, I have seen firsthand the potential of agricultural holdings. In addition to rental income, land can provide price appreciation without the day-to-day volatility of some other primary asset classes. As the global population continues to grow, productive farmland has the potential to become even more important to a productive economy. Also, taking a hands-on approach to an agricultural investment can provide the opportunity to teach children the valuable lessons of hard work and proprietorship as you maintain the properties.

2021 Q1

Patrick Fruzzetti, The Rosenau Group

We like multifamily real estate, and work with a partner that focuses on acquisition and development of multifamily properties. We structure the deals as limited liability corporations and our investors get direct exposure to a pool of six to seven properties. You get the beauty of direct exposure but don’t have to go through the underwriting of every deal every time.

There is still such undersupply in affordable housing for the so-called “missing middle.” This is firefighters, nurses and so on that have fixed salaries and have about 30% of their income going toward their housing budget and rental. The supply for these workers just doesn’t exist in many urban/suburban communities. Think primary, secondary and sometimes tertiary real estate markets where you won’t have a boom-bust cycle, so places like Montgomery, Alabama and Denver, Colorado that are growing fast and need the support of housing.

In part, we’re interested because of cash flow — we want cash flow coming from a majority of the properties, although when there is development involved there is obviously a lag. Unlike with traditional real estate funds, our investors get the benefit of depreciation. There’s also the opportunity for a future 1031 exchange if clients wish. [Investors that sell an investment property can avoid capital gains taxes if they reinvest the money in a similarly valued property or properties within a short period of time.]

How to play it with ETFs: While there is no pure-play multifamily REIT ETF, the Hoya Capital Housing ETF (HOMZ) is composed of 100 companies that represent the performance of the U.S. residential housing industry, and includes some multi-family REITs, said Balchunas. It also holds homebuilders and retail stocks, however, so it isn’t just a REIT ETF. HOMZ, with $59 million in assets, has an expense ratio of 0.45%.
Another way to play from Fruzzetti: I like abstract art, particularly paintings. You have to really love a piece of art rather than simply look at it as an investment, though. I own works by Audrey Flack, a beautiful, accomplished artist. A documentary about her came out last year, called Queen of Hearts: Audrey Flack. When she was younger, her works were in the abstract expressionist movement. Elizabeth Cooper is another artist whose works I own and enjoy — she is abstract contemporary. All of the artists I’m collecting are living. 
Michael Forrester, High Note Wealth

Investing around the need for technology infrastructure became trendy in mid- to late 2020 and then faded away. It’s still as good an investment idea as it was. We need bigger server farms, and cybersecurity for those farms, and people want internet wherever they go. Even if prices don’t look like you’re buying at a discount, the total addressable market continues to get bigger and bigger.

As a play on that, we built a sort of real estate piece for client portfolios that’s about 6% of assets. Our real estate exposure is not commercial real estate, not office buildings, nothing like that — it’s the real estate of the Internet. It’s all 5G and data center-related names, and we mix and match ETFs and individual stocks. Part of the reason we built this slice is that it produces income. A lot of real estate investment trusts (REITs) produce income, but those of us with a real estate background know that’s only good until they can’t collect the rents.

For a passive investor, the Global X Data Center REITs & Digital Infrastructure (VPN) ETF has all the names in it, and if you want a pure data play, there’s Digital Realty Trust, Inc. (DLR). But if you have $100,000 to invest you can build nice positions in some big, liquid stocks. Our real estate piece consists of DLR, Lumen Technologies, Inc. (LUMN), CoreSite Realty Corp. (COR) and Crown Castle International Corp. (CCI).

How to play it with ETFs: VPN works as an ETF choice, as does the more established Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR), which also tracks data center and cell tower REITs, said Balchunas. It has $1 billion in assets and charges 0.60% versus the $25 million in assets and 0.50% fee for VPN.
Another way to play from Forrester: I’m very much into streetwear, so I have a pretty good sneaker collection. Even in a pandemic year you saw Christian Dior do a collaboration with Jordan Brand. When they hit the street those sneakers were a couple thousand to buy, but on the secondary market they can go for $20,000 or more. eBay has its own authentication department, and StockX and GOAT will verify the authenticity of sneakers and streetwear. Now it’s moving into golf shoes — companies are releasing special edition pairs of golf shoes and they’re becoming very expensive and hard to get.

We have an all-weather portfolio of 40 stocks designed to capture the value side of equity markets, with a focus on dividend growth. Within that portfolio, we like energy stocks quite a bit. Energy represents about 12% of the portfolio and oil stands out as a good value, along with the financial sector, particularly in an environment of rising interest rates and inflation.

There’s a play on stable to rising oil prices as it relates to a better economy. All this enthusiasm we see for the Teslas of the world, and with GM’s electric vehicle announcement—there will be a transition and the traditional fossil fuel companies will adjust, particularly if they have strong balance sheets. But things always move more slowly than we think, especially outside the U.S., in places like emerging markets.

I like the traditional oil sector and four companies, in no particular order — Exxon Mobil (XOM), which pays a dividend of more than 6% and has committed to stabilizing that dividend, Chevron (CVX), which has a great balance sheet and yields around 5%, Kinder Morgan (KMI), a natural gas play that yields about 6.3% and Enterprise Products Partners (EPD), which yields 8%.

It takes time to convert to electric vehicles and these stocks are somewhat undervalued for that reason. The opportunity here is cash flow. This is is a great way to own growth plus income, and a very good inflation hedge. For those who can’t adequately diversify with individual securities, there is a terrific ETF, Energy Select Sector SPDR Fund (XLE).  It yields about 5% and you’re basically owning the whole sector.

How to play it with ETFs: XLE is a fine play if the goal is to get heavy exposure to Exxon Mobil, Chevron and Kinder Morgan, all of which together make up about 48% of XLE’s entire portfolio weight, said Balchunas. Exxon Mobil and Chevron each have about a 22% weight in the ETF.
Another way to play from Ferguson: I am a big Beatles fan. I’ve acquired albums signed by them individually and as a group. These hold their value and are growing very rapidly in value. You’d pay $5,000 to $10,000 for an album with good quality signatures. A Sergeant Pepper album with all four signatures went for about $300,000 at auction. Most recently I bought John Lennon’s Imagine album, signed “Love, John Lennon” and he drew a caricature of his face. I’d love to own an original manuscript of lyrics for one of their songs — those are very hard to come by. The most popular songs go for seven figures.
Steve Schwarzbach, Icon Wealth Partners

Our primary focus is on alternative sources of income generation. An interesting area we’re looking at is private credit, in particular a fund offered by BlackRock. The funds get superior yields to the two-year Treasury and with a level of credit risk that we don’t see as a major issue in this economic recovery. You get income on a monthly basis and it has good liquidity so to an investor it can feel bond-like. Our expectation is that cash income will be between 7% and 8%.

We think BlackRock has great insight into the creditworthiness of companies they put into their debt product. There’s underwriting risk — you have to ask is BlackRock good at underwriting the risk of that particular credit, have they done a good job of analyzing the company’s ability to service debt. Then there are the general macroeconomic issues. That was why we were particularly interested in this fund during an economic recovery, because we don’t think that the credit risk is unduly high.

We also have an idea that’s a little contrarian. Our thesis is that if you are with the right commercial real estate providers there will be a good opportunity for current income and capital appreciation. Office buildings in areas people are moving out of isn’t a great idea, but industrial logistics warehouses in areas where people are moving is interesting.

We use two private REITs, the Hines Global Income Trust and the Blackstone Real Estate Income Trust. The funds have a cash yield of about 6%, most of which is tax-deferred. Both funds have the wherewithal to build big portfolios in areas where the risk is not as high, and they’ll only invest in areas where population growth exceeds the national average.

How to play it with ETFs: There is no ETF for private credit per se, but Balchunas notes that the Virtus Private Credit Strategy ETF (VPC) indirectly tracks private credit via business development companies (BDCs) and closed-end funds. The ETF, with just $24 million in assets, yields 8.8%, but has to pay the fees of those underlying BDCs and funds, which brings its expense ratio to about 7.6%.
Another way to play from Schwarzbach: My family has a lot of history on Galveston Island on the Texas Gulf Coast. My family of German immigrants came through there and has a vacation home there. I’ve started to purchase vintage photos of the island. If I had $100,000 to spend, there are vintage photos and maps that I’d buy. I have one vintage map that I found in an antique shop that is from 1897, before the great storm of 1900, which wiped out almost the city.
Chuck Cooper, Strongbox Wealth

A theme we think is compelling is the continued convergence of technology into healthcare. There has been a massive convergence of the two, as so much innovation has been spawned in the Covid era. You have this incredible horsepower of what tech can provide in health-care analysis, in vaccines and other things. It’s an accelerant to medical discovery, with fascinating ramifications in immunotherapies, artificial intelligence, gene technology, robotics and much more.

Along the same lines in healthcare, you have this totally separate parallel yet very powerful trend in telemedicine. Virtual care seems to have achieved escape velocity from concept to a bona fide long-term delivery model.

The medical device space is where I feel the convergence is most promising. As an example, and not necessarily a recommendation, what a firm like Dexcom is doing for diabetes monitoring is just life-changing. It basically designs, develops and commercializes continuous glucose monitoring systems, and it’s all pretty much application-based. Dexcom has a remote monitoring system, though wireless connections, and patients have a receiver. It’s an app on the patient’s iPhone to see where they are at any given moment, but as important is that it’s for the person who’s looking out for someone with diabetes, and you’re talking about millions of people.

There are number of sector ETFs in the medical device area. The iShares U.S. Medical Devices ETF (IHI) is an established ETF I like, and there are a handful of more narrowly focused ETF strategies like the Global X Telemedicine & Digital Health ETF (EDOC) and ARK Genomic Revolution (ARKG).

How to play it with ETFs: The iShares U.S. Medical Devices ETF (IHI) is one of the most quietly popular ETFs out there, with $8.2 billion in assets while charging 0.43%. It is the best way to get just medical devices, Balchunas said. EDOC and ARKG have some medical device exposure but branch out into other industries as well, such as software and biotech.
Another way to play from Cooper: My best investment would be to take my family skiing. That’s the time we get to spend together and it’s literally priceless. We’ve been to most of the major places—Colorado, Deer Valley, Park City—but what we really want to do at some point is go to Banff, in Canada. That’s on our bucket list. Also maybe to Whistler, and one day skiing in Europe, in the Alps.

2020 Q4

Brian Katz, Chief Investment Officer, The Colony Group

The world is in desperate need of infrastructure investments. In addition to traditional maintenance on roads and bridges, our modern economy requires building and maintaining next-generation transportation and logistics, energy, and communications systems. One manager we like, Stonepeak Infrastructure Partners, puts money into a diverse subset of infrastructure sectors including power and utilities, transport and logistics, water, midstream energy, and communications.

We’re the most enthusiastic about their investments in communications and cold storage. The communications category includes wireless towers, data centers, and satellite networks to serve rural geographies.

Rural consumers rely on non-traditional internet providers, such as satellite networks, in the absence of robust cable and fiber infrastructure. The cost and economics to “wire” these individuals through traditional measures is prohibitive. The federal government, through the FCC’s Universal Service Fund (and other programs, such as the Connect America Fund) provide subsidies to satellite companies so these consumers have access to affordable internet, which helps to support demand.

Meanwhile, the cold storage industry, which maintains refrigerated warehouses and trucks, has showcased its resiliency during the recent economic downturn. We believe demand might accelerate as companies rethink their global supply chains and move more of the country’s mission-critical food and pharmaceutical supplies onshore.

How to play it with ETFs: Balchunas and Barna point to the Defiance Next Gen Connectivity ETF (FIVG), which tracks an index of firms that make up the backbone of the country’s communication infrastructure that are investing aggressively to expand connectivity. These firms include device manufacturers, chipmakers and content-delivery networks. The fund also includes major tower REITs American Tower Corp. and Crown Castle International Corp. alongside core services for telecommunications companies. The expense ratio is 0.30%.
Another way to play from Katz: I haven’t pulled the trigger on this yet, but I’d collect old stock certificates. A colleague has an old BMW stock certificate on his wall and there’s a really interesting industry around scripophily — collecting old bonds, stock certificates, old currencies. You can find stock certificates of Ringling Bros. Barnum & Bailey, of Apple, of Shearson Lehman. There’s a whole collecting area around the stock certificates of busted dotcoms.
Floyd Tyler, Chief Investment Officer, Preserver Partners

An alternative source of income we like is trade finance receivables. Say you have an exporter in India who wants to sell their goods to someone in the U.S. They agree on a price, but the exporter typically doesn’t want to ship goods until they are paid, and the U.S. firm doesn’t want to pay until they have the goods. There are intermediaries that step in to advance the majority of the payment to the exporter, and when the goods arrive they send the balance of the payment.

More and more fintech companies are doing this kind of finance. The one we use is called Drip Capital. You can get six-month and one-year notes backed by typically less than 90-day trade receivables across a wide range of commodities and exporters, and you can earn a 6% to 8% annualized return.

One risk is that something could happen to the commodity en route. They take out an insurance policy that covers 90% of the cost of the goods, and also take out insurance to mitigate the risk of credit losses. It’s a good source of income and it’s not necessarily correlated to the stock market or interest rates. There’s not a lot of places where you can get 7% uncorrelated for six months.

How to play it with ETFs: While there is no corresponding ETF with this strategy, Balchunas and Barna say one relatively high-income fund with international exposure and lower correlation to the U.S. equity market is Vanguard Global ex-U.S. Real Estate ETF (VNQI). The fund has a yield around 7% and a 0.78 correlation with price moves in U.S. equities. The expense ratio is 0.12%.
Another way to play from Tyler: I collect contemporary art portraying strong African American women, by African American artists. I was raised by a grandmother and aunt who were just phenomenal, and I am a big fan of women in leadership and what they bring. They’re so much smarter and committed and thoughtful than men are, generally. I’ve bought a couple of pieces from Memphis artists who are nationally known, and I’m trying to grow that collection.
Drew Nordlicht, Partner, Crest Capital Advisors

We’re allocating money to a private credit fund that’s looking to take advantage of opportunities in the private equity-backed company sector, for the lower middle-market segment — so companies with $25 million or less in earnings. There are nearly 200,000 companies in the U.S. middle market and over 500 middle-market PE firms.

These are high-quality businesses experiencing temporary financing needs. They’ve had interruptions in cash flows, and their debts have covenants and certain earnings targets they need to have in order to maintain their capital structure. Owl Rock Capital, which has a fund we’re using to invest in this area, estimates that 30% to 40% of these companies will need financing of some sort — restructuring, additional debt, an infusion of equity — because they’re close to tripping a debt covenant and need cash flow, or because they want to make an acquisition in their own space.

The fund we’re using can build creative structures and protections while generating good income and equity-like kickers. It lends money that is in most instances senior secured, on the top of the capital structure, so there is substantial risk mitigation. Also, the fund is uncorrelated to traditional fixed-income and equity markets. It aims for a conservative 10% to 13% net return, with current income accounting for much of the return.

How to play it with ETFs: Micro-cap stocks are sometimes cited as a proxy for middle- or late-stage private equity. iShares Micro-Cap ETF (IWC) tracks an index of companies that don’t have as much access to bridge or intermediate-term financing during the pandemic as larger firms. Balchunas and Barna note that while the equity upside is intact, diversification across 1,260 holdings is the only protection against risk. The fund’s holdings have an average market capitalization of $680 million. The expense ratio is 0.60%.
Another way to play from Nordlicht: I’ve always had a great interest in new technologies and have often been an early adopter. I’d use my network of angel investors/venture capital funds to make a few direct technology private company investments, or buy shares from existing investors. (SharesPost is a platform that helps to facilitate those types of transactions.) Our practice was built working with C-suite officers, entrepreneurs, and PE funds, so we’ve seen dozens of companies go from idea to maturation or liquidity event (IPO or M&A) and being a part of that company life cycle is exhilarating.
Kenneth Van Leeuwen, Founder, Van Leeuwen & Co.

You say commercial real estate now and everyone has a negative reaction, and we have a sort of counterintuitive idea there. It’s real estate companies that build data centers for big cloud computing companies such as, Alphabet, Microsoft, or that build for big biotech companies like Bristol-Myers Squibb, Sanofi-Aventis, and so on.

In the biotech area, there’s a real estate investment trust, Alexandria Real Estate Equities, which is the leading owner and operator of science real estate. It builds buildings with science labs in them already, and we know how prominent biotech and biomedical research is now. They build in metro areas, close to universities. Everyone is talking about how people are moving out of the cities, but when this calms down and you’re a recent graduate of MIT or Stanford, you will want to live where other young people are, where there is a social scene.

In the cloud computing area, we like Equinix (EQIX), which builds data centers worldwide to keep up with the growth of cloud computing. We consider it a company with a lot of growth potential, even though the stock has moved up a lot this year, and it pays you a dividend of 1.4%. Another company we like is Digital Realty Trust (DLR), which owns 275 data centers around the world and has a dividend of about 3%.

How to play it with ETFs: The Pacer Benchmark Data & Infrastructure Real Estate ETF (SRVR) holds core companies developing and managing U.S. wireless communications infrastructure and server-warehousing REITs, including Equinix as its second largest position. The fund has a concentrated portfolio of 22 securities, over $1.1 billion in assets and charges 0.60%.
Another way to play from Van Leeuwen: I’d buy art or collectible baseball cards. My brother-in-law is a famous photographer, Tom Shillea, who makes platinum prints and he says to buy what you love, what resonates with you. So my wife and I visit local galleries in the Princeton, New Jersey, area or when we are traveling, and buy works that make us happy. I’m also a sports nut. I love the New York Yankees and have a small collection of Mickey Mantle cards. I have to love the player to buy the card, and I’d buy Derek Jeter or Bernie Williams.
Craig Findley, Chief Executive Officer, Venture Visionary Partners

There is a real need for a fixed-income alternative because interest rates are so low — people are starved for income. We have been creating structured income notes for our clients. It’s a way you can build something that will generate income that actually has downside protection, and you can achieve higher yields at a time when the 10-year Treasury is just around 0.89%.

Depending on how much downside protection you want to build in and the maturity, the yield can be from 2% to 8%. We recently created an S&P 500 note with 40% downside protection for a two-year term. That yielded roughly 5% in annual income. The index doesn’t have to go up, you just don’t want it to go down more than 40% at maturity. We design the note and bid it out to other banks and issuers.

You need at least $100,000 to put into these notes, because we tend to not put more than 20% of structured notes in any one portfolio. So you’d have to have at least a million, because we want to make sure people are diversified.

How to play it with ETFs: Balchunas and Barna point to the Overlay Shares Large Cap Equity ETF (OVL), which offers investors exposure to large-cap U.S. equity beta with put-spread options for incremental income and some protection against initial market decline. The fund has a net indicated yield near 3.5%, a 0.76% expense ratio and no investment minimum.
Another way to play from Findley: My passion is family travel. I tell my four girls that nobody can take experiences away from you. I’d rather take my kids to Europe, and do an active trip with family, than buy fine wines or things. I had planned for years a family bike trip in Italy around the Amalfi coast, but our flights were canceled [due to Covid]. We’ll do it one day.

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