In This Issue

1. Our Top Story: The Uncertain Future Of Portfolio Construction

2. News Roundup

3. New Resources

4. Site News And Commentary

‼️ TOP STORY
The Uncertain Future Of Portfolio Construction

The rising popularity of alts and challenges to traditional thinking.

The 60/40 Portfolio’s Horrible, No-Good Year

What does a safe, well-balanced portfolio look like?

One of the most common pieces of “general wisdom” has been a 60% allocation to stocks and a 40% allocation to bonds. The thinking behind this is that the majority allocation to stocks still allows for strong appreciation over time. The volatility and risk of the stock market is then offset by a minority, but still heavy, allocation to bonds.

For the recent past, this seems to have performed as advertised. From 1995 to mid 2021, the 60/40 portfolio delivered only ~6.5% lower performance than a reference all stock portfolio, but with ~40% lower volatility.

Then 2022 came. Under the pressure of inflation and a rapid rise in interest rates, Old Reliable failed spectacularly. The 60/40 portfolio turned in the worst performance in 85 years.

In one of the most uncertain and volatile times in recent years, bonds failed to provide equity investors with protection and diversification when they needed it the most.

New Research, New Challenges

Why did bonds fail investors in 2022? Well, three finance professors’ new research has a bold explanation. Bonds are basically just worthless to the average long-term investor. Before reaching this conclusion, professors Anarkulova, Cederburg, and O’Doherty analyzed 133 years of financial history and data.

The main issue is inflation. Bonds provide safe nominal returns, but inflation-adjusted earnings are often quite poor.

Instead, they argue a portfolio of 50% US and 50% international stocks performs better and provides less inflation-adjusted risk overall. Interestingly, they argue that owners of US stocks are actually better off using international bonds to diversify.

Mainstream, Full Steam?

Some of you might be thinking stocks and bonds…🥱… where are the alts?

Well, it’s all connected with some big potential implications over the coming years and decades. Given this backdrop, it’s perhaps unsurprising that a recent survey from Retirement Living found strong interest in alternatives.

There’s a variety of findings from the survey, but we’ll break down a few that stand out:

• 63% of people are hesitant to make traditional investments right now, due to concerns about the economy (and presumably inflation)

• 43% of millennials had made an alternative investment in the past 6 months

• 25% of respondents reported an increased interest in alternatives after the failure of Silicon Valley Bank (SVB)

• The alternative people trust most is precious metals (gold and silver)

• Collectibles and wine were the least trusted (even less than crypto)

Does Any Of This Matter?

Maybe. While some people will just stick with what they know, the traditional approaches to portfolio construction are facing challenges. That’s true in practice and in theory.

Investors are taking notice. Interest in alternatives is rising at the same time opportunities are increasingly becoming accessible. While only time will tell how this all plays out, it seems there is a plausible future where allocation to alternatives becomes a mainstream portfolio strategy.

ALTERNATIVE INVESTMENT NEWS ROUNDUP
🏠 Real Estate

Market Trends

According to a recent piece from the Wall Street Journal, return to office mandates are driving some activity in the housing market. They cite data from Redfin indicating that 10% of all home sales are caused by employees looking to move closer to offices as companies increasingly call them back.

To what extent this matters depends, in part, on your overall view of the future of remote and hybrid work.

My personal take is that many employers (not all) seem to be taking every opportunity to claw back control they lost over employees during the pandemic. I expect that Monday-Thursday in the office will become the norm by the end of the upcoming recession.

That type of change, especially if interest rates return to lower levels, is likely to generate meaningful disruption to the current real estate market and pricing trends.

Basically, if you stopped considering proximity to offices in their real estate investment decisions after the pandemic, it seems prudent to start considering it again.

Groundfloor

Groundfloor has recently launched some interesting new Labs offerings. For the first time we’ve seen them have collaborative offerings with other investment platforms.

Specifically, there are currently Home Equity Investments available in partnership with Nada and QuantmRE.

Also, we’ve recently updated our Groundfloor Labs article. It’s easier to read than ever and we have information about all 10 labs we’ve seen launch on the platform so far.

Lastly, the company also shared on X they had received more awards. They made a list of fastest growing companies and are a finalist in two different sets of fintech-related awards.

🎵 Music Royalties

Market Trends

In a thread on X, European investment platform MasterExchange argued that revenue from streaming will grow at a 13% CAGR (compound annual growth rate) for the “upcoming years.”

The arguments are basically 1) better technology and connectivity, 2) better algorithms and personalization to get people to listen more, and 3) smart device integration. There isn’t any citation or explanation of how they came up with the 13% figure specifically, so take this with a grain of salt or two.

In a related story, Spotify is making some changes that should generally increase royalty payments to artists.

Basically, it sounds like people figured out how to game the system a bit with background, relaxation, and sleeping sounds (think rainfall and whale sounds). Spotify plans to make changes to the royalty rates for these types of tracks. That should result in artists receiving an estimated $1B in extra royalty payments from the platform.

Indify

The Wall Street Journal had an interesting article about Indify. It’s kind of a venture platform for upcoming music artists. For artists, the financing arrangements give them more upside than traditional deals with labels.

Indify is currently invite-only, though you can apply for access from the website. From investors, they appear to be looking for people in the music industry - music managers or music funds.

ANote Music

ANote Music announced that 4 additional songs were getting added to one of their previous catalogues. This is pretty neat because it’s just free added upside for investors. I’m not sure of the circumstances behind this, but I expect this is a one-off rather than something we can expect to see on a regular basis.

SongVest

SongVest submitted four new SongShares offerings for qualification with the SEC. Three of those did not go through the VIP auction process, which isn’t typical for SongShares.

We’ll keep an eye on whether this is a trend that continues in the future. The VIP auction is valuable, but it also slows the pace of offerings down and can be confusing for new users on the platform.

💡 Equity Crowdfunding & Startups

KingsCrowd

In their Pitch Review newsletter, KingsCrowd took a look at how impact investments affect the amount of money raised through equity crowdfunding.

Basically, impact deals have a higher median raise. Generally speaking, they receive more funding. But the average is lower. It sounds like this is because there are some non-impact deals that pull in huge funding numbers and skew the average.

They also have their Q4 demo day coming up on December 6th.

StartEngine

StartEngine closed their crowdfunding campaign after more than a year. Based on KingsCrowd data, the total amount raised puts them in the top 25 largest equity crowdfunding deals.

StartEngine private drops have begun. Two deals have been launched for investment (instead of just reservation / expression of interest). The first was Attentive. The second was Airtable, which quickly sold out and required them to acquire another tranche of shares to try to meet investor demand.

Unfortunately, given the demand for the accredited offerings, the minimum investments have ended up being around $15K. When they first accepted reservations, it appeared they were planning to launch with a $5K minimum.

It looks like they’re also hosting a live webinar with the founders of several companies with large, ongoing raises on the platform. You can register to attend the December 6th event.

Wefunder

Wefunder is updating the experience on their Portfolio page. Over the “coming weeks” they’ll be updating the status and valuations for all the companies that have raised on the platform. The page will now also show realized and unrealized gains.

Republic

Republic announced on X that their Note will launch on the Avalanche blockchain.

🎨 Other Assets

Vint

In an email to investors, Vint shared that they would suspend their non-accredited “collections” beginning on January 1, 2024. They cited increasing challenges under the Regulation A framework for fractional investments as the reason.

Previous collections will continue to be managed by the Vint team. New offerings will be made available to accredited investors under a new fund structure.

We will update our Vint content early next year when the changes go live.

This is a bit of a disappointment for non-accredited investors looking to invest in wine and spirits. That leaves Vinovest as the main alternative.

Finlete

In a letter to subscribers, Finlete announced several developments that make it seem like things are progressing towards the launch of their first offering. Among them is the news that they have expanded their leadership team and are getting close to signing their first player.

📚 NEW RESOURCES
Should You Invest On Royal In 2024?

This represents a couple of firsts for us. This is the first attempt I’ve made at video content. I think it’s also the most opinion-oriented piece we’ve published and the closes we’ve gotten to an actual review.

Read it here

Click below to watch

Terms

We launched a new page to be a one-stop shop for simple explanations for the various financial terms you’ll encounter investing in alternatives. We have more than 30 terms to start with. We’ll continue to expand and add more of them over time.

Take a look here

Tools & Services

We’ve added a new section to the Investment Platform Database for tools and services. We’ve added 3 so far:

• KingsCrowd - analysis and portfolio tracking for equity crowdfunding

• Parallel Markets - an easy way to get accreditation letters

• ProjectionLab - financial planning, simulation, and goal measurement

🌐 SITE

The main piece of content during this period was the video and article about investing on Royal. As mentioned above, it was a first for doing video content.

It turns out that everything about creating video content is difficult, time consuming, or both. I have a new-found respect for everyone that makes being engaging in front of the camera seem so easy.

I’d like to make more videos in the future. It forces me to develop new skills and I think we can potentially reach new audiences through them. It’s a huge time investment though, so it’s not something we’ll do very often.