Trends Watch: June 14, 2018

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks to Robert Bolton, President, Iron Bay Capital.

What is your outlook for alternatives?

Our outlook for the alternative space remains encouraging. Today’s investors are presented with many challenges in terms of achieving their financial goals using traditional methods.  Past favorable performance has benefitted from a long period of declining interest rates.  Now faced with rising rates and equity valuations at historically high levels, investors need to look at ways to diversify away their risk and enhance returns.  This is where alternatives present a compelling opportunity. 

In relation to the financial sector specifically, as rates rise, financial services companies will benefit from net interest margin expansion.  Financials make up nearly 18% of the Russell 2000 Index, a significant component to a diversified portfolio.  We believe actively managed strategies remain the best opportunity to achieve sector outperformance.  Long/short vehicles can provide downside protection and lower volatility.

What is your outlook for the economy?

The economy is still in a healthy expansion mode.  With tax reform, regulatory reform and steadfast consumer confidence, we see no reasons for organic growth not to continue.  Financial services companies continue to be the central nervous system to the overall economy.  With prudent underwriting and capital allocations by banks to support business growth, the economy will continue to grow over the longer term.

What keeps you up at night?

Generally speaking, the greatest fear we see for the U.S. markets at this point is centered on geopolitical forces.  Tensions between global powers (China, North Korea, Russia) can disrupt global expansion.  With limited inflation data, we are also sensitive to an overly aggressive Federal Reserve.  Raising rates too much, too soon can have a damaging effect to our growth outlook.  The balance between inflation and deflation is a fine line to walk.