3 Trends To Track In 2022 For Self-Directed IRAs

2022 has barely begun yet it has already taken investors on a wild ride. On the way up: volatility, inflation, and interest rates. On the way down: unemployment, cryptocurrencies, and housing supply.

For self-directed IRA (SDIRA) investors, who often invest in alternative assets (“alts”), these investing conditions are not a deterrent. In fact, they could spell opportunity.

Key Macro Factors for Alternative Investments This Year

Many alts enjoy low correlation to publicly traded stocks and bonds. However, broader economic trends still affect their value. In a recent outlook, J.P. Morgan Asset Management pegged a number of factors that could influence alts in 2022. Three stand out:

• Supply chain disruptions. Ongoing waves of new COVID variants will continue to disrupt the global supply chain. However, the backlog should drive inventory restocking this year.
• Interest rate hikes. With higher-than-desired inflation, the Federal Reserve (Fed) is poised to hike rates. Market strategists disagree about how the process will play out. Some believe it will be challenging for the Fed to make three hikes, as forecasted. Others expect they’ll hike four or five times.
• “Elevated” volatility and “muted” expected returns. Many strategists, including the J.P. Morgan team, expect a more muted year for public stocks in 2022. Earnings growth should cool. And valuations could retreat from highs. J.P. Morgan and others also see the bumpy ride persisting.

 3 Trends to Watch in SDIRA Alternative Asset Allocation

Though many investors continue to turn to stocks with the rallying cry “there is no alternative!,” SDIRA investors have the benefit of a longer menu of options. Here are three zones in alts where we see high levels of interest for 2022:

TREND #1: Pockets of Rebound in Commercial Real Estate

Private real estate is a perpetual favorite among SDIRA investors. In our 2021 survey of SDIRA investors, we found that 12.2% of our SDIRA clients invested in real estate in the last two years.

The pandemic continues to pressure cash flow in some commercial real estate (CRE) sectors – but not all. Alt investment firm PineBridge describes CRE as a “highly bifurcated” landscape. They see a brighter outlook for some sectors while the “old core” of real estate investments, like office and last-gen retail, are in decline.

In a recent report, industry giant CBRE identified industrial warehouses as assets that could lead the pack. Storage facilities benefit from the ongoing shift in retail logistics. Third-party operators are working to position themselves closer and closer to the end consumer. Multifamily units, meanwhile, could see strong demand. The housing boom is squeezing buyers and renters out of single-family properties.

TREND #2: Exciting Developments in Social Impact Investments

Social impact is a growing priority for many investors. In alts, social impact investing is usually done through private equity funds.

It is an exciting, disruptive time for innovation following the pandemic. Some pre-IPO companies are undergoing an innovation boom, many working to enact social impact along with digital advances. Medical and tech companies, in particular, are at the heart of these trends as they design new solutions and tools for the changes in how we live and work.

TREND #3: Continued Interest in Private Debt 

Private debt is now the third-largest alts sector behind real estate and private equity. In our investor survey, 9.4% of investors had recently invested in some form of private debt in their SDIRA.

Private debt can offer appealing yields to investors. But the even bigger appeal is usually the diversification benefit.

One trending zone we are watching is the peer-to-peer lending space. A number of platforms now enable investors to make direct loans to individual borrowers, though experts suggest diversifying across borrowers to help manage risk.

SDIRAs Expand the Investable Universe

For sophisticated investors, a self-directed IRA is a flexible tool. These three sectors could offer opportunities amid the upheaval in the corporate environment and the volatility in public investments.

STRATA Trust supports investors, financial professionals and investment sponsors nationwide with the custody of private debt and equity, private real estate and other alternative investment forms for self-directed IRA investors.

The information provided in this article is educational content and not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.