If you’re like us, the Tokyo Olympics have been a refuge of entertainment and inspiration during lockdown in Sydney. This got us thinking, what Olympic analogies can we take and apply to investing?
Asset classes, or the types of investments that investors can choose, all have varying characteristics, strengths and weaknesses, just like Olympic sports.
So, what if asset classes were Olympic sports? eInvest Investor Relations, Jodi Pettersen, breaks it down.
Aussies love dividends and swimming. Australian equities, the staple of most Aussie investors has to be analogous with the swimming events. Australian equities, are popular with investors because there are tax advantages such as franking credits that make this asset class extra appealing to income focused investors. The structure of the swimming events, with a wide variety of individual, medley, stroke, distance and gender combinations make this event a high yielding for gold.
Because fixed income securities have limited upside (i.e the fixed in fixed income), managing risk through diversification is extra important in fixed income investing. Long term focus is key and strategy is extra important in this asset class (which is why we think you should consider always going active). Fixed income has to be the long distance cycling. The power of the peloton is like diversification. Bond investors even talk about the slope of a yield curve and duration as a measure of sensitivity to interest rate changes.
If global equities were an Olympic sport, it would have to the soccer. A global sport loved by millions with players from all over the world. Global popularity, familiarity and access make this one a crowd favourite.
Small Caps/venture cap
Small Cap and Venture capital invests in small emerging companies, listed and unlisted respectively. If they were Olympic sports, they have to be the new sports like skateboarding and boulder climbing that are somehow being dominated by kids and not many people know about. Apparently break dancing is coming to Olympics of the future. We don’t know what small cap and venture capital investors will invest in in the future, but that’s what makes this asset class all the more interesting (and risky!).
Infrastructure is similar to the equestrian. You need big coin to compete. Infrastructure investors invest in large, expensive assets like airports, solar farms and ports. Those show jumping horses, yeah they are worth up to 12 million pounds.
That said, similar to how horse investors can buy into a syndicate to own a fraction of a horse, listed infrastructure assets can allow everyday folks to own part of an infrastructure asset (and your super fund already likely owns plenty already).
Private debt is like the ancient and mysterious sport of fencing. Making money from lending money has to be as old as sword fighting itself. This is the stuff of medieval times that is still popular today.
Alternatives is the catch all asset class. As the name suggest, it involves alternative or other types of investments that don’t match the labels above. It includes hedge funds, private equity but and also include more esoteric investments such as film rights and mining royalties. The goal is often to deliver a return that is less correlated with the rest of the asset classes. If alternatives were an Olympic event, they would be the athletics. A jumbled collection of activities where one person is trying to jump as far as they can, the other trying to jump as high as they can, with the help of a long stick and even some people jumping in water (steeplechase).
Disclaimer: Please note that these are the views of the author, Jodi Pettersen, Investor Relations , eInvest, and is not financial advice.
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