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BUBBLE TROUBLE

Investors are flocking to alternatives in search of yield, but there is a danger this new popularity could lead to overvaluation and bubble territory

Strategy analysis Alternatives

With bonds not doing for a portfolio what they once did, wealth managers are looking to diversify into alternative investment strategies and asset classes for stable income.

This thinking has been driven by a toxic cocktail of rock-bottom interest rates, ongoing monetary policy from central banks and the bond bull market, all of which have pushed down bond yields to record lows.

At the same time, Donald Trump’s election and improved confidence in the eurozone have pumped certain areas of the equity market up to record highs, leading many to perceive them as overvalued.

But investors still need yield, and in this environment the search has taken them into more esoteric territory to achieve it. Step forward aircraft leasing, alternative risk premia and listed infrastructure; even the much maligned hedge funds are getting a look in.

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