Monday brought a huge market downturn, with the Dow dropping a record 1,175 points. Tuesday morning didn’t look much better, with the market dropping an addition 567 points at the opening bell. Things calmed down as the day went on, with investors rallying to end the day up 567 points. With everything going on, I wanted to share my thoughts on the recent stock market volatility, what it means, and where defensive investors might look to shift their capital. We don’t see the equity market volatility over the last several days as a signal of a larger economic contraction as much as it is a correction in the equity market. Typically, in the case of a greater recession, we’ll see credit spreads widen prior to seeing a drop in the stock market, which is not happening right now. Instead, this looks to be an equity correction combined with a flight to quality in other markets. This volatility has been driven primarily by the movement of an overheated equities market back to fair values and private credit strategies are looking increasingly attractive. Accordingly, TIPS, Agency MBS, and US TSY should provide stability if the equity markets continue to fall. If inflation emerges as the ultimate market bogeyman, TIPS are preferred over the others on this list. For investors looking to stay in stocks and ride out an erratic market, low volatility ETFs become an attractive place to invest your portfolio, while equities with high recent price momentum become largely unappealing.REITs have significant exposure to the equity markets, and they also tend to have exposure to interest rates. If investors expect deflation or a falling interest rate environment, REITs perform well as income-producing assets. In a recession, REITs may in fact be more defensive than stocks as their earnings, and thus much of their value, are tied to long-term leases that remain in place regardless of market volatility. For investors looking to be particularly defensive, residential apartment REITs become more attractive while office and industrial park REITs become less desirable. And a shameless plug: AlphaFlow’s AOP product is a great hedge against volatile equity markets. Contact us to learn more.
Disclosure: All data presented here is for demonstration purposes only. Past performance is not indicative of future returns. Nothing in this article should be construed as a solicitation or offer, or recommendation, to buy or sell any security. Investors should consult with their own legal, financial, and tax advisors. While AlphaFlow strives to make the information in the article as timely and accurate as possible, AlphaFlow makes no claims, promises, or guarantees about the accuracy, completeness, or adequacy of the contents of this article, and expressly disclaims liability for errors and omissions in the contents of this article.
About the author:
As CIO of AlphaFlow, Chris is dedicated to finding systematic alternative investment solutions for all investors. He is on a mission to deliver cost-effective and transparent solutions to real estate and other private market investors. Prior to AlphaFlow, Chris was Managing Director, Head of Index Solutions, at Axioma where he led the expansion of its multi-billion dollar AUM index business into ETFs and equity options. Before Axioma, Chris was at BlackRock as a founding member of the FactorBased Strategies Group and the lead investment strategist for its flagship style factor hedge fund. During his tenure, Chris helped build the company’s smart beta and factor-based investing platforms and contributed to the design of the company’s first systematic fixed income ETF and alternatives mutual fund.
“Great vision without great people is irrelevant.” – Jim Collins
Our vision at AlphaFlow is to unlock the world’s opaque markets, and we look to do that by making it easy to invest in previously inaccessible asset classes. Building a great company though always starts with recruiting world-class talent, and so I’m incredibly excited to welcome Chris Woida as co-Chief Investment Officer of AlphaFlow!
Chris has a successful track record of identifying missing pieces in an investor’s portfolio and building innovative and cost-effective solutions across asset classes. Most recently, he was the Head of Index Solutions at Axioma where he led the expansion of the firm’s multi-billion dollar index business into fixed income and derivatives.
Before Axioma, Chris was at Blackrock as a founding member of the Factor-Based Strategies Group and the lead investment strategist for its flagship style factor hedge fund. During his tenure, Chris helped build the company’s smart beta and factor-based platforms and contributed to the design of the company’s first fixed income smart beta ETF. His wealth of experience in building and structuring investment offerings will ultimately be a tremendous asset to our clients.
Over the last 9 months, AlphaFlow has fundamentally changed real estate investing. Many of our clients who began investing with us last spring are now in over 200 loans. Massive diversification protects downside, but by being able to quickly put investor capital to work we’ve also minimized cash drag and basically covered our fees. While we’re proud of our performance, Chris is going to help elevate every part of our business.
Over the coming year, he’s going to lead our efforts to:
Introduce new tax-efficient investment structures
Implement institutional-quality risk management
Bring a more systematic approach to lender and loan underwriting
Identify asymmetrical investment opportunities, in which the upside opportunity exceeds the downside risk
Ultimately, expand to additional asset classes
Today, individuals, hedge funds, university endowments, and family offices are using AlphaFlow to passively invest in real estate bridge loans. We’re proud to be serving all of these investors on the same terms and as a registered investment advisor, we’ve embraced our fiduciary duty and make every investment allocation algorithmically, so no investor needs to worry about anyone receiving preferential treatment. We’re unlocking the world’s opaque markets, and I couldn’t be more excited to have Chris on the team to help lead AlphaFlow!
About the author:
Ray Sturm is a leading entrepreneur in financial technology, and is currently the CEO of AlphaFlow. Prior to launching AlphaFlow, he founded RealtyShares, one of the P2P industry’s top platforms for real estate investing. His early career in finance included investment banking at Bear Stearns, restructuring at Lazard Frères and private equity at CCMP Capital.
Ray has a BBA-Finance from the University of Notre Dame and a JD/MBA from the University of Chicago.