There has not been a new year in recent memory any more unpredictable or ominous than 2018.
And, yet, the United States has demonstrated the power and resilience of its economy time and time again. Meanwhile, historic technological advances are creating the promise of enormous gains in productivity and wealth generation with the use of artificial intelligence, robotics and virtual reality.
We asked more than a dozen financial and investment experts to share their own insights and premonitions about where 2018 will take the private wealth industry and the United States at large.
Michael Underhill, CIO, Capital Innovations
Bitcoin will hit $35,000, and then it is hard to see what would stop central banks from creating their own digital currencies and using regulation to tilt the playing field until they win. The long history of currency tells us that what the private sector innovates, the state eventually regulates and appropriates. There is no reason to expect virtual currency to avoid a similar fate. As a result or cryptocurrency mania which leads to regulation and subsequent surging in inflation, real assets will see a tsunami of inflows in 2018 as investors try to protect their portfolios.
Ron Carson, CEO, The Carson Group
2018 will be a bumpy ride. We expect the number of days with 1 percent moves in the S&P 500 to at least triple from the eight we have seen this year. Twenty-four moves of over 1 percent would still be less than half the 20-year average. Our advice to investors: emphasize more attractive areas, get ready for a bumpier ride, and take a hard look at how well you and your portfolio are positioned to weather any sharp market declines.
Chris Clement, partner, IronOak Energy
Despite the Trump administration’s emphasis on reviving coal, natural gas and low-cost wind and solar dominate new energy development and investment. The increasing threat of a public equities bubble spurs diversification into non-correlated investment products, including solar bonds, crowdfunded project investments, and renewable energy yieldcos. Initial Coin Offerings (ICOs) for blockchain-based energy trading platforms proliferate, attracting large sums of capital but with uncertain prospects for yielding returns, in part because of the threat of retroactive SEC regulation.
Michael Felman, president, MSF Capital Advisors
I believe we are on a verge of a trade war with China. The most recent visit of President Trump to China was just ceremonial in nature. Most of the deals announced at the meeting had already been in the planning stage. It failed to deal with critical issues such as the huge trade imbalance between the United States and China and Chinese currency controls that manipulate the market. Instead of opening up its border to foreign trade, China is actually shutting it down.
Keith Black, managing director of curriculum and exams, Chartered Alternative Investment Analyst Association
After 10 years of underperformance, a diversified portfolio of commodity futures not only has positive returns, but outperforms many other asset classes. The world realizes the impact of a future of electric vehicles, with the increased demand of natural gas used for electricity generation increasing the price of this clean fuel relative to the price of gasoline and heating oil/diesel fuel. Materials used in batteries, such as copper, nickel, cobalt and lithium, continue to have strong price increases.
Daniel Wildermuth, CEO, Kalos Financial
Market flattens and falters as investors focus on elevated valuations and disappointment over limited impacts of tax reform. As a result, allocations to various alternative investments start to drastically increase as optimism fades regarding traditional assets. Allocations to interval funds of all types continue to increase as investors seek exposure to various nontraditional asset classes while also hedging their bets via a structure that provides daily pricing and more predictable exits.
Bill Nimmo, national and managing director, Wells Fargo Wealth Management
Increases in global trade and improving foreign economies will bolster U.S. economic growth in 2018 and compensate for any modest increases in interest rates. This will have positive impact on U.S. job growth and most types of domestic real estate, which will result in the following in 2018 in most major U.S. markets: 1) continued positive absorption of commercial and residential space, and 2) rising prices and rents, though at smaller increase than recent years.
Scott Picken, CEO, Wealth Migrate
In 2018, we will see an increase in foreign investment dollars flow into real estate assets in the United States and other developed, stable markets. This is likely to be bolstered by a possible stock market correction, as well as an increase in private market real estate access through new financial technology. There has been and will continue to be a dramatic rise in the number of established investment firms launching online investment portals allowing increased access to private market real estate.
Yuen Yung, CEO, Casoro Capital
At every family office, pension fund and institutional investor conference I attend, the consensus has been the same. In 2018, the focus will be a hunt for real assets, with real yield. A possible stock market correction and the tax plan, which is beneficial for real assets and REITs specifically, will only drive this trend further.
John Harrison, executive director and CEO, Alternative & Direct Investment Securities Association (ADISA)
The likely occurrence of an online nefarious event for those using Internet-borne crowd type investing — either through hacking or blatant defalcation — makes headlines and slows the increase in popularity of crowdfunding. Further, advisers increasingly develop their own technology to stay competitive with large-scale robo advice.
Merrie Frankel, president, Minerva Realty Consultants
REITs will continue to perform with an ever-greater bifurcation between the strong and weak properties in every sector. Although Retail REITs will continue to be affected by accelerating e-commerce sales, remember that approximately 91% of U.S. sales as of 3Q17 still occur in brick and mortar stores with more online retailers opening physical stores. Retail is evolving — not dying.
Joseph Lavin, senior vice president, CBRE Clarion Securities
As 2017 closes with strong double-digit returns for global listed infrastructure, it is our expectation for robust returns again in 2018. For the next decade, infrastructure remains a secular theme around the need to invest, enhance and replace aging essential assets. Our outlook for 10 percent to 12 percent returns over the next 12 months is supported by this theme as well as a fundamental 6 percent to 8 percent dividend growth, current 3.5 percent yield, and further re-rating toward private market multiples.
Steven Kantor, CEO, S2K Financial
The dramatic rise in U.S. equity markets in 2017 of more than 20 percent in the S&P 500, and many other indexes, may continue in 2018, but I wouldn’t invest based on that view. The combination of factors that drove the upside includes low interest rates and expectations of lower taxes, at least for corporations. My prediction for 2018 is that the concept of “total return” will make a comeback and that true yield-
oriented investments will regain favor.
Darren Whissen, founder and president, Atomi Financial Group
2018 will be the year in which everything changes for financial advisers. What were considered just minor threats in 2017 — fintech, crowdfunding, the rise of illiquid assets, fiduciary-focused regulatory changes, industry consolidation, fee compression — will grow into an outright assault on an adviser’s AUM and profitability. Advisers who do not proactively change and find some sustainable competitive edge will find themselves left far behind.
Gloria Nelund, chairman and CEO, TriLinc Global
Alternative private assets — private real estate, private debt, etc. — will be the winner in 2018. The U.S. Fed will maintain a very slow and steady interest rate approach for the short-end of the yield curve, meaning that significant competition from liquid securities is still some ways off. Financial markets will continue pricing in moderate economic growth in 2019 for the mid-longer end of the curve, so, the combination of a slowly increasing short-end yield curve without a commensurate increase in the mid-long end of the yield, will lead to “flattening” of interest rates. With a relatively benign economic outlook, higher yielding alternative asset classes will continue to attract large asset flows in 2018.
This article initially appeared on Real Assets Adviser, 1 January 2018.