In Singapore, and around the world, we’ve become accustomed to investing in stocks and bonds.
Better known as equities and fixed income, respectively, they understandably dominate the investing landscape.
However, when we build a portfolio, it’s also important for us to buy into “alternative” asset classes.
These so-called alternatives can include instruments such as REITs, gold, commodities, private equity (PE), hedge funds, or collectables (think wine or luxury watches).
Alternatives would typically make up between 5-10% of your overall portfolio, although with many high-net-worth individuals (HNWIs) this percentage can often be more.
For most investors, though, it makes sense to start with the big alternative assets that offer up low-cost, liquid options when purchasing them.
That, of course, means buying these alternatives via an exchange-traded fund (ETF). So, here are two ETFs – for alternatives – that Singapore investors can buy and hold as part of their portfolio.
1. SPDR Real Estate Select Sector ETF
We all know State Street via its massive S&P 500 ETF (SPY) but did you know that the firm also has an ETF for each of the individual Global Industry Classification Standards (GICS) sectors too?
That’s where the SPDR Real Estate Select Sector ETF (NYSE: XLRE), an ETF which gives you real estate exposure to the US; the world’s largest REIT market.
REITs are known to be an alternative asset class given they invest into “real” assets in the form of physical property.
For this real estate ETF, investors can buy into US REITs for an expense ratio of just 0.10%. Its top five holdings have all the biggest REITs we’re probably familiar with.
These include Prologis Inc (NYSE: PLD), American Tower Corp (NYSE: AMT), Equinix Inc (NASDAQ: EQX), Crown Castle Inc (NYSE: CCI), and Public Storage (NYSE: PSA).
Around 45% of the ETF is in “specialised REITs”, which include the likes of storage, data centre and mobile phone tower operators.
Residential REITs (14.5%) and Industrial REITs (12.7%) round out the top three sub-sectors of the ETF.
The SPDR ETF has around US$4.4 billion in assets under management (AUM), meaning it’s a solid option for long-term investors looking at real estate as an alternative investment.
The ETF pays out a dividend every quarter and is currently yielding 3.7%.
2. VanEck Vectors Agribusiness ETF
For those of us who may want exposure to commodities, there’s a wide range of choice, from oil to food commodities such as wheat and corn.
With the VanEck Vectors Agribusiness ETF (NYSE: MOO), investors get exposure to companies involved in the agribusiness segment.
Top holdings of the ETF include companies such as Zoetis Inc (NYSE: ZTS), an animal feed, medicine and vaccine producer that serves both veterinarians and livestock farmers.
Another top holding is Deere & Co (NYSE: DE), an agricultural equipment manufacturer and construction machinery producer.
However, the overall annual expense ratio for the ETF is higher – than a typical broad-market ETF at – 0.53%. But for a specialised ETF it’s not too high.
It has a total AUM of US$1.1 billion meaning it’s on the smaller side of the ETF universe.
But the VanEck ETF provides a level of diversification from the broader market as – in periods of high inflation – commodities and agricultural goods tend to perform well.
Instead of buying the commodities directly, the ETF allows investors to access the companies involved in the sector directly.
That can turn out to be beneficial in a down market. For example, last year when the S&P 500 declined 18.1%, the VanEck Agribusiness ETF outperformed by only falling by 8.1%.
Think about allocating to alternatives
In a world where more and more investors are looking towards alternative assets, it’s an opportunity for everyday investors to build a small position in an asset class that can help weather volatility in traditional asset classes.
By focusing on the largest, and most accessible, alternatives investors can access quality opportunities at relatively low cost.
That’s particularly true of ETFs, with the SPDR Real Estate Select Sector ETF and the VanEck Vectors Agribusiness ETF providing two such options that investors could buy and hold for the long term as part of a diversified investment portfolio.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares of Deere & Co.
