This article first appeared in Wealth, The Edge Malaysia Weekly on December 30, 2024 - January 12, 2025
The rule of thumb is to cap alternative investments — anything beyond cash, bonds and equities — at 5%. But what if these non-traditional assets perform so well that you start questioning whether that limit still makes sense?
Cryptocurrencies, or digital assets, did remarkably well in 2024. Maiden crypto Bitcoin, which has the largest market capitalisation, was traded at US$42,208 at the start of the year, according to CoinGecko. On Dec 5, it skyrocketed to US$103,607 per coin at one point, officially breaking past the hundred-thousand-dollar mark as Donald Trump was re-elected to the White House. That spike represented a whopping increase of 146.46% in less than a year.
While US$100,000 per Bitcoin sounds like a lot, Cathie Wood, founder of Ark Invest, says Bitcoin is still in the “early innings”. Wood made her name during the pandemic by investing in disruptive tech companies through various exchange-traded funds.
Her prediction? Bitcoin could reach US$3.8 million by 2030, based on a comparison of Bitcoin’s market cap to gold’s value. With the precious metal at US$2,700 per ounce, the gold market is worth US$15 trillion whereas Bitcoin is worth about US$2 trillion, at US$102,750 per Bitcoin. Wood certainly sounds more convincing today, given the performance of Bitcoin year to date.
What about gold? Gold prices hit US$2,652 per ounce on Dec 5, representing a roughly 32% increase from the start of the year. It is a lot lower than its “digital peer”, but it still had a good run.
The question is: Given the strong performance, should you stick to a 5% allocation for alternative assets? The temptation to increase it is growing, especially with the expanding range of product offerings.
For instance, a local boutique asset management firm recently partnered with an Australian investment company to distribute a private credit fund to Malaysian investors.
According to its September newsletter, the fund has delivered an annual compounded return of 9.8% since its inception in August 2017. More impressively, it has consistently distributed monthly income to investors, including throughout the pandemic.
Interesting developments are unfolding in the local alternative investment scene as well. BR Capital, a joint venture between Bursa Malaysia and credit rating agency RAM Holdings Bhd, began operations mid-year, offering the public an opportunity to invest in investment notes issued by mid-tier companies with annual revenues of RM50 million to RM500 million.
These investment notes are rated by RAM Holdings, and the issuers include subsidiaries of public-listed companies. They are essentially debt papers, like bonds, but governed under different sets of rules and laws. Should they be perceived as alternative investments or traditional ones like bonds? What is clear is that these investment notes provide retail investors with rather attractive annual returns of more than 7%.
As an individual investor with a limited budget, how much should you allocate to investment notes from relatively large companies, while also perhaps investing in digital currencies and gold? Against this backdrop of rising alternative investments — fuelled by high equity valuations, regional conflicts and the US-China trade war — more investors are seeking steady income from asset classes that are not subject to market fluctuations. This shift in investment preferences highlights the growing appeal of diversifying into alternative assets.
Beyond national stock exchange operators, several smaller fund houses are carving out niches in asset management with unique alternative investment products.
Even government-linked entities such as Ekuiti Nasional Bhd recently announced that it was eyeing its first private credit disbursement by year’s end.
So, is 5% enough for alternative investments? The answer depends on your risk appetite and understanding of these assets. With more products entering the market, now is a good time for investors to learn more.
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