Trends Watch: April 26, 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 Matthew Zabloski, Managing Director, Delbrook Capital.

What is your outlook for alternatives?

Our outlook for alternatives is extremely positive. In a bull market, such as the one we’ve been living through for the last eight years, investors have had no shortage of options for cheap beta. Since the financial crisis of 2009, the S&P 500 Index is up approximately 250%. When the market rolls over, which history shows is inevitable, alternative strategies with low correlations to the S&P will be in the spotlight. Investors need to start looking closely at their portfolios and look for alternative strategies that will protect their downside risk when the equity markets pullback.

What is your outlook for the economy?

There is no question we are in the late stages of economic expansion that has been fueled by ultra-low interest rates. In the short term the ‘U.S. Tax Reform’ has had the desired effect – repatriating capital and boosting corporate profits. We predict the benefits of these tax cuts to be absorbed by the economy in the next 12-18 months, at which time, true productivity levels will become clear. Commodities have historically outperformed all major asset classes in the late stage of the economic cycle and especially during periods of rising inflation.

What keeps you up at night?

Three main factors have the potential to impact our business:

1. The massive underinvestment in mining capex since 2012 has created a ‘perfect storm’ where there are not enough new mines ready to come online to satisfy anticipated demand for select metals. We feel the market is ignoring this situation, which will only be solved by rapid price appreciation sufficient to trigger a supply response.
2. The Congressional Budget Office forecasts that the annual U.S. Government deficit will exceed $1 trillion by 2020, which may start to crowd out private investment and drive interest rates significantly higher.
3. Inflation is still subdued, but there are increasing risks that inflation concerns could have a major impact on the bond and equity markets.