There are asset classes and strategies many of us rarely think of. Far from the regular buying and holding of one company’s stock, these alternative investing methods can often lead to higher returns.
There are a wide variety of these alternative investments, and interval funds are great examples. Recently, I was reminded of how little retail investors think about investing outside of the traditional means when a friend of mine asked what an interval fund was.
I figured if she was looking for this type of information, others would be as well. So, let’s take a deeper dive into what I touched on in my conversation with her.
An interval fund is an example of a closed-end fund, a type of mutual fund that issues a fixed number of shares through a single initial public offering (IPO) to raise capital. Instead of trading on the secondary market, an interval fund periodically offers to buy back a percentage of outstanding shares at net asset value (NAV).
The rules that come along with investing in an interval fund, as well as the assets they typically invest in aren’t of the run of the mill variety. These rules and asset classes make investment in an interval fund very illiquid, meaning the buying and selling of your position is not possible as in investing in equities.
So what types of assets do these funds typically hold? These funds include asset classes such as commercial real estate, consumer loans, debt, and other illiquid assets.
Which brings us to the “interval” part of the investment. Interval is in reference to the periodic events in which the fund purchases back its own shares.That is, the fund periodically offers to buy back a stated portion of its shares from shareholders. However, shareholders are not required to accept these offers and sell their shares back to the fund.
Next, why investors may want to add these investment vehicles to their portfolio.
If you’re like most investors, you’re after the higher returns that often accompany these funds.
Because they are invested in these illiquid, alternative investments, the fund’s performance isn’t necessarily tied to a falling stock market. Investing in things like debt and real estate present investors with an investment strategy that can see higher yields, but also, can operate independent of other economic conditions.
Check out some of the examples below for those interested in adding…
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