Low cost, low risk

alternative investments

Low risk, high returns. That’s every investor’s dream scenario, but one that is as elusive as the Loch Ness Monster. Seeing as the days of the corporate and/or government pension have gone the way of the dinosaur, private investment portfolios have become crucial elements in retirement plans since the 1980s. Young workers now play the stock market, invest in bonds, mutual funds, standard retirement savings plans and, yes, property. But some investors are looking farther afield for innovative investments that work best with patience—and best of all that have relatively low costs to entry. 

There are plenty of low risk investments out there to choose from, among them P2P lending (also called social lending), annuities and preferred stocks, but low risk doesn’t always mean low cost. Billionaire Warren Buffett is an advocate of low cost investments—as little as US$500 to start—and insists they’re necessary tools for average investors (watch out for fees). Bank products and suggestions from financial advisors are often similar in nature, and real estate remains a popular choice in the SAR. But shifting values combined with liquid cash mean shifting investments too. Hong Kong is blessed with a strong economy, low unemployment, and rigid lending rules—meaning potential property purchasers are often sitting on cash they can’t invest. This brings up fiscally responsible alternatives for those waiting for the right time to buy a home. 

Contrary to popular belief, not all art costs $100 million; witness the success of the annual Affordable Art Fair, which dedicates an entire section to art starting at $1,000. Since 2011, Art Futures Group has offered end-to-end investment services for those looking to dabble in one of the world’s oldest investments. Focusing on mid-career, contemporary Chinese artists, Art Futures’ crew of art historians and finance professionals use a strategic investment and leasing programme for gains stemming from visibility of a tangible asset. “Previously art investment was only for the wealthy, with minimum entry levels being in the region of $5,000,000,” explains Art Futures’ founder and CEO Jeremy Kasler. “This changed when [we] entered the market. We have an entry level of around $200,000, which allows normal investors to make money with art.”

AFG purchases art on behalf of investors and leases it out (usually to corporate entities and hotels) for something akin to a rental yield, with an exit strategy for when owners want to sell for good. Investors with a nicely balanced portfolio can expect net returns of approximately 8% annually. “Emerging artists are too new with no track record, and with blue-chip artists, the boat has already sailed,” says Kasler. “Mid-career artists represent the best opportunity for art wealth creation.”

Another emerging investment sector is the environment. Like fintech (financial technology), green investments are a rapidly emerging “product” rooted in environmental progress. Often lumped in with socially responsible investing, green investments are traditional investments with a new focus on companies actively doing something positive for conservation and natural resources: renewable energy, clean water projects and infrastructure, operating with ecologically sound business practices. Green investments can include windmill farms, organic farming, fuel cell start-ups, or buying stock in existing companies that have aggressive green policy and products (IBM, Adobe, Seventh Generation and IKEA are a few). Sustainable plantation management firm Asia Plantation Capital, which works across Asia and Africa, is just that—a plantation manager that carefully controls the supply, regrowth and management of rare, in-demand woods and natural resources that are so popular in living rooms and yoga studios globally, but which are dwindling: teak, patchouli and bamboo among others. Investors (generally through equity funds representing APC’s US$250 million in plantation assets) reap the benefits as the world becomes greener and more conscientious each day.

For those devoted to real estate, one of the world’s fastest growing and most affordable property sectors is purpose-built student accomodation (PBSA). While the cost of a flat in Hong Kong (one with even marginal rental value) can step well north of $10 million, student flats in hot spots like the UK where student numbers are booming—24% of all students are international students—can be purchased for a fraction of a down payment in the SAR. Global investment in student housing in 2016 totalled US$16.4 billion, and student numbers in France, Germany, Australia, and the Netherlands are rising, as is the development of student accommodation.

“Rapid growth in international student numbers has underpinned demand for high quality PBSA across the globe. Some 4.6 million students studied abroad in 2015, an increase of 130% since 1999. This figure is forecast to reach 8 million by 2025,” according to Savills’ World Student Housing 2017-2018 report. “China, by far the largest outbound market, accounts for 17% of all international students globally.” Brexit has done little to soften demand for student housing in the UK, the U.S. remains the world’s most mature student housing market, and PBSA developers are taking their product on the road. Purchases can be made for as little as £65,000 in Liverpool or AU$145,000 in Melbourne—that’s HK$700,000 to $850,000 respectively—and net yields can reach 10%. Low cost and low risk brings a new meaning to “back to school.”  

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