2016 Trends in Finance: H2 Highs after Brexit Lows

After a rough start for financial markets that persisted from the first quarter (Q1) and escalated at the end of Q2 from Brexit, the second half of 2016 (H2) has begun on a calmer note with equities recovering from recent volatility and just off new record highs. Digital wealth managers have continued to gain traction from the first half of the year, along with the adoption of new payments and lending technologies that consumers are using from emerging and mature fintech companies including finance-related solutions for investing. One significant trend appears to be the ongoing shift from active to passive investing, as portfolios are rebalanced less often against longer term targets – when compared to higher turnover from active managers that aim to capture short-term market moves or frequently adapt to underlying benchmarks. US Equity Rolling 12-MOnth flows [Source: (1) Financial Planning / Morningstar Data] Shift from Active to Passive investing The ongoing trend towards passive investing appears to reflect a number of drivers, including the idea that active turnover is linked to increased trading costs – which reduces net returns – along with the argument that outperforming a benchmark over time can be achieved with rebalancing on a more passive basis or less often. Such views on passive investing in low-cost ETFs were expressed in Anthony Robbins latest book titled ‘Money Master the Game,’ after he had interviewed some of the largest fund managers globally. The crux of the passive premise is that buying equity indexes on dips can lead to above average returns on the assumption that the price of the index eventually recovers – rather than trying to time the market on shorter-term moves, along with diversifying via the use of medium term and longer term bonds and commodities. However, real diversification in these scenarios can be challenging for investors to achieve because of how correlated electronic markets are, which can create a contagion effect within a portfolio even if its various holdings are well spread across traditional assets. With the US elections coming up next quarter, geopolitical uncertainty surrounding the outcome is likely to cause further volatility in equity markets and making alternative investments an attractive choice for investors to diversify ahead of Q4. Robo investing and fintech Robo-advisory firms such as Wealthfront, Betterment, SigFig, Future Advisor, and traditional brokers such as Charles Schwab and Vanguard, and others that use automated processes known as robos to provide digital advice, continue to push forward. Most recently, E*Trade and Capital One had each announced a robo-related offering, whereas in other parts of the world such as Australia and the UK – regulators have already drafted proposed guidelines for regulating automated investment advice as new solutions emerge from brokerages and technology providers in major financial centers. Timing challenges Actively timing the market can be hard even for the pros, while following a plan such as maintaining a target holding distribution in a portfolio that is readjusted to the markets ebbs and flows only at pre-determined intervals is far easier and less costly. This is primarily what robo advisors try to achieve, while making the customer acquisition process scalable for online brokerages to onboard customers digitally, yet what are the real returns that clients will achieve and what is their overall portfolio risk? The answer to both of these questions is less certain, when compared to a structured product with a target-yield that is based on an asset-backed security. Industry growth and consolidation As trading costs continue to decline, so do the fees that brokerage firms earn – which consequently can lower their earnings and create broader industry challenges for financials, as the value that brokerages offer becomes narrowed to other services such as research or other services that clients may pay for or consider to be of premium value. Over time, this trend can lead to a consolidation in the industry where only a handful of the largest companies that provide nearly the same services to the masses will remain, while the emergence of a new set of solutions and tools including alternative asset classes become mainstream. Estimates predicted by an A.T. Kearney model using an adoption rate based off the percentage of investable assets into robo advisory services suggest a compound annual growth rate (CAGR) of 65% through 2020 in the US. This particular estimate would bring the nearly $300b of Assets under Management (AuM) in robos up to a projected amount of $2.2trillion by 2020, according to the report’s forecast. A recent report by Technavio in July estimated that the market for algorithmic trading in the Americas was forecast to reach $19.21 billion by 2020, growing at a CAGR of 10.46% from $11.68 billion from last year. Thanks to related convergences in technology and finance, which is helping to bring alternative asset classes to the market via regulated offerings, investors now have more to choose from than just low-cost ETFs and robo-advisors. Emerging alternative assets Such solutions, known as Alternative Investments, are products that are typically available only outside of traditional brokerage and banking institutions although are slowly becoming adopted at mainstream venues as well. New innovative products continue to be launched and the emergence of alternative investments has been enabled by financial technology (fintech) startups and new platforms/products that bring hard assets to the digital realm in the same way that robos aim to digitize investment advice online. These new products have created more available options for clients to choose in their portfolio, yet learning how such investments operate may require even sophisticated investors take a step back to learn and understand how Alternative Investments can have their place – to produce both yield and diversify portfolio risk. Alternative financing boom According to a report from PeerIQ that tracked marketplace lending securitizations for Q2 2016, volumes rose 15% from the prior quarter, with consumer, student, and SME loans represented across P2P lending platforms. Steven Hatzakis Cumulative Volume Alternative Invesments Asset Class [Source: PeerIQ 2016 Q2 Marketplace Lending Securitizations tracker] While these markets typically represent credit-based assets and not assets secured by collateral, overall, it still represents a growing portion of Alternative financing. Moreover, the secondary markets created from these assets present investors with alternative investment opportunities. For example, a milestone during last quarter came from SoFi, after it received an industry first ever AAA rating from Moody’s on its first rated unsecured consumer loan deal for a student loan transaction. Alternative Assets in Litigation Finance For example, litigation finance, also known as legal finance, has emerged as a new viable alternative asset even for institutional investors such as pension funds. A Wall Street Journal article published on May 15th 2016 titled ‘Litigation Financing attracts new set of investors’ had highlighted that even pension funds participated in investing in a portfolio of lawsuit settlements as part of the structured alternative investment product. More recently, LawCash has brought several portfolios of packaged settlement cases to alternative investment platforms such as YieldStreet with nearly a dozen such structured deals made available to investors. In these deals, LawCash acts as the originator and because of its consistent track record and risk-management process, investors risks are broadly diversified across a large number of cases so that their returns are not entirely dependent on the outcome of one specific case. In terms of experience, LawCash is a leading provider of litigation finance including in pre-settlement financing nationwide, and is an original founder of the American Legal Finance Association (ALFA), and has helped finance over 90,000 individual cases with funding in excess of $425m. Disrupting to acquire new and existing market share Moving into new areas of interest, disruptive technologies and business models such as AirBnB and Uber have created a new landscape and marketplace, in the same way that Facebook, Twitter and LinkedIn had changed social media. However, businesses like AirBnB and Uber represent underlying assets and not just paper-backed social statuses and resumes. Brian Hughes, a partner for KPMG in the US, and National Co-Lead Partner of KPMG Venture Capital Practice, commented in statement published on his firm’s website on July 19th, “There’s a lot going on, with uncertainty dominant in every market. Many investors are holding back to see how these uncertainties shake out, while others are focusing on companies they see as having a solid foundation and growth plan – like Uber, Snapchat and Didi Chuxing.” Picture3 In the above example the number of taxi-medallion sales declined in Chicago, this can also reflect that the existing market-share is acquired by ride-sharing fleets or vehicle operators that cater to both existing riders and new entrants that adopt the use of products such as Uber. Such socially-friendly businesses help unlock efficiencies within local communities while reflecting changes in consumer trends on a macro level nationwide. With the right registered investment advisor, and technology, finding a portfolio that represents such an investment in emerging businesses and disruptors can provide yield while ensuring that underlying assets are secured as collateral in case of risk. YieldStreet screens alternative assets for opportunities across portfolios where the overall holdings of each deal are inherently diversified so that risk isn’t concentrated – yet at the same time these investments have little to no correlation to the stock market. With a rejection rate over 90% only select opportunities that meet YieldStreet standards are presented to investors, adding valuable diversification to almost any portfolio (compared to a portfolio of only ETFs – even if those funds represented various asset classes). Therefore, while robos could have their place in the future of traditional finance, alternative investment platforms which are currently finding high-yielding returns for investors, can be a prudent part of a medium-to-long-term portfolio and complement client’s returns and diversification needs.
How helpful is this content?

Share this article:

Sign up for Yieldstreet in 3 easy steps

Sign up with your email address

Securely verify your identity and link a bank account

Verify your accreditation (if applicable) to access all of Yieldstreet’s offerings.

The Yield

Our weekly podcast providing ideas about how to make money work for you and bring you closer to your dreams.

Since inception, over $2.2B has been invested on Yieldstreet

Join today for free to access alternative investment opportunities.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest" or "Annualized Return" represents an annual target rate of interest or annualized target return and "term" represents the estimated term of the investment. Such target interest or target returns and estimated term are projections of the interest or returns and or term and may ultimately not be achieved. Actual interest or returns and term may be materially different from such projections. This targeted interest or returns and estimated term are based on the underlying investments held by the applicable.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including Dec 22th, 2021, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Prism Fund before investing. The prospectus for the Yieldstreet Prism Fund contains this and other information about the Fund and can be obtained by emailing [email protected]eldstreetprismfund.com or by referring to www.yieldstreetprismfund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

300 Park Avenue 15th Floor, New York, NY 10022


No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

Banking services are provided by Evolve Bank & Trust, Member FDIC.

Investment advisory services are provided by YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure
Copyright © 2022 YieldStreet, Inc.