Where to Invest $100,000

Five money managers offer investment ideas for these tumultuous times.

By Suzanne Woolley

17. studenoga 2020. 10:00

In the wake of a tumultuous U.S. presidential election, and with the Covid-19 pandemic upending almost every aspect of our lives, sitting in a cocoon of cash is tempting.

But interest rates around the world are at or near record lows, meaning your money is unlikely to grow if you simply hold on to it in your bank account. And while huge uncertainties remain about the course of the coronavirus and the outlook for global economies, some clear trends are emerging to present investment opportunities.

When Bloomberg asked five wealth managers where they’d invest $100,000 today, ideas ranged from real estate investment trusts that specialize in infrastructure for biotechnology and cloud-computing operations to providing financing for companies with $25 million or less in earnings. When asked what they’d do with that same chunk of cash if they could spend it on a personal passion, responses stretched from a foray into scripophily to buying contemporary art portraying strong African-American women.

For those who want to use exchange-traded funds as rough proxies for the investing themes highlighted by the experts, Bloomberg Intelligence ETF analysts Eric Balchunas and Morgan Barna provide suggestions.

2020 Q4

Brian Katz, Chief Investment Officer, The Colony Group

The world is in desperate need of infrastructure investments. In addition to traditional maintenance on roads and bridges, our modern economy requires building and maintaining next-generation transportation and logistics, energy, and communications systems. One manager we like, Stonepeak Infrastructure Partners, puts money into a diverse subset of infrastructure sectors including power and utilities, transport and logistics, water, midstream energy, and communications.

We’re the most enthusiastic about their investments in communications and cold storage. The communications category includes wireless towers, data centers, and satellite networks to serve rural geographies.

Rural consumers rely on non-traditional internet providers, such as satellite networks, in the absence of robust cable and fiber infrastructure. The cost and economics to “wire” these individuals through traditional measures is prohibitive. The federal government, through the FCC’s Universal Service Fund (and other programs, such as the Connect America Fund) provide subsidies to satellite companies so these consumers have access to affordable internet, which helps to support demand.

Meanwhile, the cold storage industry, which maintains refrigerated warehouses and trucks, has showcased its resiliency during the recent economic downturn. We believe demand might accelerate as companies rethink their global supply chains and move more of the country’s mission-critical food and pharmaceutical supplies onshore.

How to play it with ETFs: Balchunas and Barna point to the Defiance Next Gen Connectivity ETF (FIVG), which tracks an index of firms that make up the backbone of the country's communication infrastructure that are investing aggressively to expand connectivity. These firms include device manufacturers, chipmakers and content-delivery networks. The fund also includes major tower REITs American Tower Corp. and Crown Castle International Corp. alongside core services for telecommunications companies. The expense ratio is 0.30%.
Another way to play from Katz: I haven’t pulled the trigger on this yet, but I’d collect old stock certificates. A colleague has an old BMW stock certificate on his wall and there’s a really interesting industry around scripophily — collecting old bonds, stock certificates, old currencies. You can find stock certificates of Ringling Bros. Barnum & Bailey, of Apple, of Shearson Lehman. There’s a whole collecting area around the stock certificates of busted dotcoms.

Floyd Tyler, Chief Investment Officer, Preserver Partners

An alternative source of income we like is trade finance receivables. Say you have an exporter in India who wants to sell their goods to someone in the U.S. They agree on a price, but the exporter typically doesn’t want to ship goods until they are paid, and the U.S. firm doesn’t want to pay until they have the goods. There are intermediaries that step in to advance the majority of the payment to the exporter, and when the goods arrive they send the balance of the payment.

More and more fintech companies are doing this kind of finance. The one we use is called Drip Capital. You can get six-month and one-year notes backed by typically less than 90-day trade receivables across a wide range of commodities and exporters, and you can earn a 6% to 8% annualized return.

One risk is that something could happen to the commodity en route. They take out an insurance policy that covers 90% of the cost of the goods, and also take out insurance to mitigate the risk of credit losses. It’s a good source of income and it’s not necessarily correlated to the stock market or interest rates. There's not a lot of places where you can get 7% uncorrelated for six months.

How to play it with ETFs: While there is no corresponding ETF with this strategy, Balchunas and Barna say one relatively high-income fund with international exposure and lower correlation to the U.S. equity market is Vanguard Global ex-U.S. Real Estate ETF (VNQI). The fund has a yield around 7% and a 0.78 correlation with price moves in U.S. equities. The expense ratio is 0.12%.
Another way to play from Tyler: I collect contemporary art portraying strong African American women, by African American artists. I was raised by a grandmother and aunt who were just phenomenal, and I am a big fan of women in leadership and what they bring. They’re so much smarter and committed and thoughtful than men are, generally. I’ve bought a couple of pieces from Memphis artists who are nationally known, and I’m trying to grow that collection.

Drew Nordlicht, Partner, Crest Capital Advisors

We’re allocating money to a private credit fund that’s looking to take advantage of opportunities in the private equity-backed company sector, for the lower middle-market segment — so companies with $25 million or less in earnings. There are nearly 200,000 companies in the U.S. middle market and over 500 middle-market PE firms.

These are high-quality businesses experiencing temporary financing needs. They’ve had interruptions in cash flows, and their debts have covenants and certain earnings targets they need to have in order to maintain their capital structure. Owl Rock Capital, which has a fund we’re using to invest in this area, estimates that 30% to 40% of these companies will need financing of some sort — restructuring, additional debt, an infusion of equity — because they’re close to tripping a debt covenant and need cash flow, or because they want to make an acquisition in their own space.

The fund we’re using can build creative structures and protections while generating good income and equity-like kickers. It lends money that is in most instances senior secured, on the top of the capital structure, so there is substantial risk mitigation. Also, the fund is uncorrelated to traditional fixed-income and equity markets. It aims for a conservative 10% to 13% net return, with current income accounting for much of the return.

How to play it with ETFs: Micro-cap stocks are sometimes cited as a proxy for middle- or late-stage private equity. iShares Micro-Cap ETF (IWC) tracks an index of companies that don’t have as much access to bridge or intermediate-term financing during the pandemic as larger firms. Balchunas and Barna note that while the equity upside is intact, diversification across 1,260 holdings is the only protection against risk. The fund's holdings have an average market capitalization of $680 million. The expense ratio is 0.60%.
Another way to play from Nordlicht:I’ve always had a great interest in new technologies and have often been an early adopter. I’d use my network of angel investors/venture capital funds to make a few direct technology private company investments, or buy shares from existing investors. (SharesPost is a platform that helps to facilitate those types of transactions.) Our practice was built working with C-suite officers, entrepreneurs, and PE funds, so we’ve seen dozens of companies go from idea to maturation or liquidity event (IPO or M&A) and being a part of that company life cycle is exhilarating.

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Kenneth Van Leeuwen, Founder, Van Leeuwen & Co.

You say commercial real estate now and everyone has a negative reaction, and we have a sort of counterintuitive idea there. It’s real estate companies that build data centers for big cloud computing companies such as Amazon.com, Alphabet, Microsoft, or that build for big biotech companies like Bristol-Myers Squibb, Sanofi-Aventis, and so on.

In the biotech area, there’s a real estate investment trust, Alexandria Real Estate Equities, which is the leading owner and operator of science real estate. It builds buildings with science labs in them already, and we know how prominent biotech and biomedical research is now. They build in metro areas, close to universities. Everyone is talking about how people are moving out of the cities, but when this calms down and you’re a recent graduate of MIT or Stanford, you will want to live where other young people are, where there is a social scene.

In the cloud computing area, we like Equinix (EQIX), which builds data centers worldwide to keep up with the growth of cloud computing. We consider it a company with a lot of growth potential, even though the stock has moved up a lot this year, and it pays you a dividend of 1.4%. Another company we like is Digital Realty Trust (DLR), which owns 275 data centers around the world and has a dividend of about 3%.

How to play it with ETFs: The Pacer Benchmark Data & Infrastructure Real Estate ETF (SRVR) holds core companies developing and managing U.S. wireless communications infrastructure and server-warehousing REITs, including Equinix as its second largest position. The fund has a concentrated portfolio of 22 securities, over $1.1 billion in assets and charges 0.60%.

Another way to play from Van Leeuwen: I’d buy art or collectible baseball cards. My brother-in-law is a famous photographer, Tom Shillea, who makes platinum prints and he says to buy what you love, what resonates with you. So my wife and I visit local galleries in the Princeton, New Jersey, area or when we are traveling, and buy works that make us happy. I’m also a sports nut. I love the New York Yankees and have a small collection of Mickey Mantle cards. I have to love the player to buy the card, and I’d buy Derek Jeter or Bernie Williams.

Craig Findley, Chief Executive Officer, Venture Visionary Partners

There is a real need for a fixed-income alternative because interest rates are so low — people are starved for income. We have been creating structured income notes for our clients. It’s a way you can build something that will generate income that actually has downside protection, and you can achieve higher yields at a time when the 10-year Treasury is just around 0.89%.

Depending on how much downside protection you want to build in and the maturity, the yield can be from 2% to 8%. We recently created an S&P 500 note with 40% downside protection for a two-year term. That yielded roughly 5% in annual income. The index doesn’t have to go up, you just don’t want it to go down more than 40% at maturity. We design the note and bid it out to other banks and issuers.

You need at least $100,000 to put into these notes, because we tend to not put more than 20% of structured notes in any one portfolio. So you’d have to have at least a million, because we want to make sure people are diversified.

How to play it with ETFs: Balchunas and Barna point to the Overlay Shares Large Cap Equity ETF (OVL), which offers investors exposure to large-cap U.S. equity beta with put-spread options for incremental income and some protection against initial market decline. The fund has a net indicated yield near 3.5%, a 0.76% expense ratio and no investment minimum.

Another way to play from Findley: My passion is family travel. I tell my four girls that nobody can take experiences away from you. I’d rather take my kids to Europe, and do an active trip with family, than buy fine wines or things. I had planned for years a family bike trip in Italy around the Amalfi coast, but our flights were canceled [due to Covid]. We’ll do it one day

Zanimljivo je kako su i profesionalci podijeljeni oko potencijalno interesantnih investicija i da većina njih nije sklona mainstreamu i ganjanju nevjerojatnih zarada..... kakvima se čak i na ovako efemernom mjestu.... većina prisutnih nerijetko voli pohvaliti. Al na stranu dnevno trgovanje i investicije od par sto ili par tisuća dolara, na takvima se ruku na srce, tesko pa i u dugom roku, obogatiti.

Obzirom na valuacije zanimljiva je (ne)sklonost riziku i klađenje na mali downside i potencijalno izdašniji upside. Dakle, u ova zeznuta vremena prilično nategnutih i povijesno visokih valuacija lakše je ocito nezaraditi nego (previše) izgubiti. To u pravilu nije “normalan” mindset i ukazuje da se stvari (i valuacije) moraju fundamentalno ili korjenito promijeniti da bi se vratile “na pravi put” i uobičajeni modus operandi burzovnog ulaganja.