The stabilizing force
Jaskolka says much of that solid performance is because their MICs invest in residential rather than commercial mortgages, which are more prone to market volatility and have been more negatively impacted by the pandemic. As well, because MICs invest in debt and not the underlying equity, even if property values dip in the wake of the pandemic, these mortgages will remain as is. He also noted that these mortgages in CMI’s MIC portfolios are still performing well since property owners prioritize servicing this debt during the pandemic given it’s often their principle residence.
However, Jaskolka understands that high unemployment and the resulting lost income poses a risk to all investments, even residential mortgages. At the same time, though, he says that housing is such a fundamental need that residential mortgages don’t face the same risk of default like commercial mortgages during a downturn. As well, since MIC portfolios are offered at different levels of risk, investors can choose the fund that best aligns with their risk tolerance.
CMI also wants to use their MIC funds as a means to educate and inform investors about the benefits of alt investing strategies so they can make better use of this asset class in their portfolios. Julian Clas, VP Capital Markets and Funds at CMI, says that incorporating alt products like MICs will result in more consistent returns for investors, whatever the market conditions may be. MICs enable private investors to gain access to alts in a similar way to how public pension funds have used this asset class for many years.
“If you are using a 60/40 stock/bond portfolio model, in a long-only position and the public market goes down, you’re going down no matter what,” Clas says. “Public pension funds, though as an example, have been moving their assets into alts for a long time, giving up some liquidity to ensure their portfolio remains positive no matter what.”
Clas and Jaskolka both say more investors need to make use of this investment strategy. It’s a technical strategy, though, built around novel products. For investors to benefit from alts, they need to be educated about them. That’s where advisors come in.