Tilting focus towards alternative investments

The temptation to limit the scope of investing to only listed securities is very high, especially for retail investors. Worse off with the almost non-existent local fixed-income market due to various factors one of them being sub-inflation returns. In fact, in most cases when the term investing is said out, what comes out to peoples’ minds is the stock market, at least in my view. Without taking anything away from the bourse, the world of investments is so broad and the stock market is only one of the many avenues.

The year 2022 has been terrible for stock market investors all over the world, and a disaster for those invested on the ZSE. If you had taken a position on the whole market when the year started, by now you would have lost 80 percent in real terms.

The structural changes that were imposed on the stock market and its investor in the second quarter of the year made all the difference. To be fair to stock market investors, money can be made on the exchange and money has been made before but these changes just changed the game completely.

First, it was the change in the circuit breaker to contain volatility, then the increase in the cost of trading. The introduction of the capital gains tax for securities held for less than 180 days, just killed all the speculative behavior on the market and subsequently the activity.

Capital in nature is very timid and does not like to flow towards areas or sectors where it is restrained and doesn’t see much of opportunities. This is why the focus is being tilted towards something called Alternative Investments, or just Alts for those who are more seasoned in the investments game.

Alternative Investments, as the name suggests, are the other option to our traditional investment assets like equities, fixed income, and cash. They are known for their illiquid nature and tend to be a good hedge against inflation. Typically we are talking about commodities, real estate, private equity, and other investments in agriculture or mining, etc. Unlike in listed equities, a bit more specialised knowledge and expertise might be needed when considering investing in Alts. Alternative investments are attractive to investors because of the potential for portfolio diversification resulting in a higher risk-adjusted return for the portfolio.

Zimbabwe is on a path to expand its mining sector, with a target of becoming a US$12 billion industry. Globally as well, commodity prices peaked early this year following the supply shocks and the tension in Europe.

Although there are listed vehicles on the exchanges that give you exposure to the mining sector, they don’t seem to do justice in reflecting what’s happening in the sector via their returns. More aggressive and risk-seeking investors might want to be more involved in the crux of things and earn higher returns and control too. This can be achieved by separately discussed financing models, something listed securities don’t necessarily offer you.

Infrastructure development is also another key hallmark pillar of the second republic and a lot of developments have been ongoing in the past half-decade or so. Construction of residential cluster houses and shopping malls has also been on a high during that period. The property market is experiencing growth as well and this could an alternative avenue where capital can be deployed and seek higher returns.

Agriculture has become a bone of contention amongst many economists and political commentators who argue whether resources should be continually deployed towards the sector. Whether you believe that focus should be shifted from the sector or not, there are some factors that you can’t deny such as that there are opportunities in horticulture or exporting and the recently allowed cannabis farm. There are a few private equity firms here in Zimbabwe already getting exposure in these spaces.

The bigger institutional investors seem to have understood the importance of diversifying through Alts and you can even see the increase in the portion they now occupy on the total portfolio. Old Mutual Investment Group, one of the biggest investment companies in Zimbabwe highlighted in an analyst briefing this year how Alternative Investments drove the increase in their funds under management.

So the retail investor could be thinking that all the listed above options are only for the deep-pocketed bigger institutions or high net-worth individuals. Well not necessarily, private equity even stretches to investing in your friend’s idea or early start-up. As an angel investor, you get to actually understand the business better and have a good chance to see your investment grow as the business grows. If you talk to a pharmacist you’ll be amazed by the returns metrics in their industry, something which far exceeds the returns offered by traditional investment assets.

In the end, traditional assets are very good passive investments but there are also many other areas where superior risk-adjusted returns can be pursued with less regulatory risk. Let us not limit investments to paper assets.-ebusinessweekly