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JPM goes ‘underweight’ on alternative investments after they lose 10% this year

(Reuters) – Analysts at J.P. Morgan turned negative on alternative investments as they expect lower returns for the asset group compared to traditional assets.

The brokerage downgraded alternatives to “underweight” from “overweight” after estimating the asset group to return 10% over the next 12 months against 12% for traditional assets.

The outstanding value of alternative assets like hedge funds and private debt in total asset investments have fallen by 10% this year to $25 trillion, analyst Nikolaos Panigirtzoglou said.

However, the brokerage said market share of alternatives in total assets remain at a record level.

Record high inflation, along with market sell-offs, cloud the outlook for alternative assets, even though private equity and hedge funds have seen strong performance this year.

However, share of alternatives in total asset has reached a new high of 13.7% in 2022, compared to just 7.6% in the beginning of 2007, according to analysis by JPM.

“While public markets already price in significant recession risks, and digital assets have repriced significantly following the collapse of Terra USD, some alternative assets such as private equity, private debt and real estate appear to have lagged somewhat,” Panigirtzoglou said.

TerraUSD, one of the world’s largest stablecoins, lost a third of its value earlier this month, spooking cryptocurrency investors and partly contributing to bitcoin’s tumble below $30,000 for the first time in 10 months.

(Reporting by Aniruddha Ghosh in Bengaluru; Editing by Maju Samuel)


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