Best Alternative Investments UK to Watch

As the name suggests, alternative investments are the asset classes that fall outside of the status quo of traditional investments – namely stocks, bonds, and cash.

In this guide, we discuss some popular alternative investments in the UK.

10 Popular Alternative Investments to Watch

Here’s a breakdown of 10 alternative investments available to UK residents. Scroll down to read our in-depth insights on each asset.

1. Real Estate Select Sector SPDR Fund
2. Silver
3. Bitcoin
4. Peer to Peer Lending
5. Cannabis Stocks
6. Crude Oil
7. Stock Options
8. Invesco Senior Loan ETF
9. iShares Emerging Markets Local Government Bond Index Fund

Alternative Investments in the UK to Watch

Not only do you need to find some time to find an alternative investment that meets your long term financial goals, but you also need to ensure that it is readily accessible to UK retail clients. This simply means that you do not fall under the scope of a professional, accredited, or institutional investor.

With this in mind, below we discuss UK alternative investments that we believe are worth your consideration – all of which can be purchased online in a matter of minutes.

1. Real Estate Select Sector SPDR Fund

Even if you were able to buy a property outright, investing in a single asset from a single marketplace doesn’t allow you to diversify.

The Real Estate Select Sector SPDR Fund

Put simply, this is a large-scale exchange-traded fund (ETF) that seeks to track the performance of the wider US real estate market. In order to reach this goal, the fund managers at SPDR, which is the financial institution behind the ETF, have built a portfolio that contains a wide selection of public companies that are involved in the American property scene.

This includes the likes of:

• American Tower Corporation
• Prologis Inc.
• Equinix Inc.
• Crown Castle International Corp
• Digital Realty Trust Inc.
• Public Storage
• SBA Communications Corp. Class A
• Welltower Inc.
• Weyerhaeuser Company
• Realty Income Corporation

The weighting –  refers to the percentage of capital allocated to each holding of the ETF, reflects the influence that each comp[any has on the US real estate scene. For example, which American Tower Corporation has been assigned a weighting of over 14%, Realty Income Corporation stands at just 2.83%.

2. Silver

While many investors will look at gold when considering a store of value, silver is leading the way at present. Back in March of this year, you would have paid just $12.27/oz. Fast forward to late October and you’d need to pay $24.48/oz. This means that the value of silver has more than doubled in less than 7 months.

As you can imagine, it would take many decades to get anywhere near this sort of return when investing in low-risk bonds or stocks. If you’re wondering how you can jump on the silver wagon, this alternative investment class does not require personally purchase and store the asset.

Instead, all you need to do is invest via an ETF or trust. One option in the market at this moment in time is that of the iShares Silver Trust. Not only will the trust look to replicate the growth of silver, but it will actively trade it in the short term.

Over the past 12 months alone the iShares Silver Trust has returned 36.80% for investors – which is huge.

3. Bitcoin

Bitcoin is a cryptocurrency which at the very least you have likely heard of. It was first launched in 2009 and since expanded into a multi-billion pound dollar class. In fact, at the time of writing, Bitcoin has a total market capitalization of over $254 billion. To put that into perspective, just 20 companies listed in the US (think Apple, Amazon, Google, etc.) are in possession of larger valuations.

With that being said, Bitcoin is an extremely speculative asset class. It does not yield income and it is still volatile. For example, it is not uncommon for this digital currency to increase or decrease in value by 10% or more in a single day of trading. This is why you should always limit your stakes – even more so than the other alternative investments listed on this page.

4. Peer to Peer Lending

In a time not so long ago, the loan space was reserved primarily for big banks and building societies. However, fast forward to 2021 and it is not possible to play the role of the lender through peer-to-peer financing. For those unaware, peer-to-peer means that you are essentially cutting out the middle man.

As such, you will be lending money to consumers and businesses in the UK at competitive interest rates. There are heaps of such platforms active in the space that allows you to get started from the comfort of your home. In some cases, you only need to invest £10 per loan. You get to diversify across hundreds of different loan agreements and thus – mitigate the risks.

In terms of how much you can make, this really can vary. For example, interest yields can depend on the credit rating of the borrower, the length of the term, and whether the funds are secured or not. Some peer-to-peer lending websites even offer Buy Back Guarantees. This means that the originator will cover the agreement if the borrower subsequently defaults.

5. Legal Cannabis

Cannabis is a multi-billion pound commodity, albeit, the legal side of things is only just about taking off. The industry is split into two key segments – recreational and medical. The former – which entails buying cannabis from a licensed dispenser on the back of receiving a medical prescription, is present in many countries around the world.

This includes much of Europe, the US, Australia, and even Thailand. However, it is recreational cannabis that offers the true potential. At present, this is only a reality in two countries – Canada and Uruguay. A number of US states also permit the recreational sale of cannabis, too.

With that said, more and more governments are considering relaxing these draconian laws. When do they do, this will open up to the doors to huge upside potential for those active in the space. You have two options to invest – buying cannabis stocks or investing in an ETF that tracks several cannabis companies.

6. Crude Oil

This means that those holding the futures contracts were prepared to pay people to take delivery of the oil as they had nowhere to store it. With that said, a more appropriate benchmark to use is that of the Brent Crude Index – which hit lows of $19 barrel in April.

Since then, this has more than doubled – with an at-the-time-of-writing price of $38.

Nevertheless, if you want to catch yourself a bargain, there are many ways to access this alternative investment class.

In fact, BP shares are currently priced at just 190p. As such, if and when the stocks get back to the 521p region, this would translate into a growth of 174%. Of course, there is no guarantee that the shares will ever recover. But, if you believe that at $38 per barrel oil is under-priced, naturally, buying shares in a major oil producer is a way to gain exposure to the market.

7. Stock Options

Stock options are getting more and more popular with investors that are looking to access the financial markets in a more sophisticated manner. In a nutshell, this alternative investment allows you to speculate on the future value of a stock. If you go long – meaning you think the stocks will increase, then you are purchasing call options. If you think that the stocks will decrease in value, then it’s put options.

But, an appealing aspect of alternative investments like stock options is that you don’t need a lot of capital to access your chosen market. This is because of the ‘premium’ system. This is like a security deposit that you put up front to execute your position.

For example, if you are buying £10,000 worth of IBM stock options and the premium is set at 5% of the total contract value – then you will need to risk just £500. Then, if your prediction is incorrect, you only lose the £500 premium. But, if you are correct, you can exercise your right to buy or sell the options.

Many stock options have an expiry date of three months and they will always come with a ‘strike price’. Regarding the former, this is the price that will dictate whether or not you make money. For example, if the strike price on IBM stock options is $120 per share, you would need to speculate whether you think the stocks will finish higher or lower than this price in three months’ time.

8. Invesco Senior Loan ETF

The overarching objective of this ETF is to track the performance of the Leveraged Loan 100 Index. The Index in question consists of the 100 largest leveraged loan companies in the United States. For those unaware, a leverage loan is where institutions provide financing to those that already possess large levels of debt.

On top of this, the end borrower – which can be an individual or company, will often be in possession of a low credit rating. As there is a greater chance that the borrower will default, companies involved in the leveraged loan space charge much higher rates of interest.

In turn, this means that investing in the Invesco Senior Loan ETF has a risk/reward ratio that is higher than the traditional lending scene.

Some of the companies found in this ETF include:

• American Tower Corporation
• Prologis Inc.
• Equinix Inc.
• Crown Castle International Corp
• Digital Realty Trust Inc.
• Public Storage
• SBA Communications Corp. Class A
• Welltower Inc.
• Weyerhaeuser Company
• Realty Income Corporation

9. iShares Emerging Markets Local Government Bond Index Fund – Invest in Emerging Market Bonds

Many governments around the world issue bonds. However, outside of the US, UK, Japan, and European economies – making an investment into these bonds is virtually impossible. Well, not unless you are prepared to meet a huge minimum lot size of around 7 figures.

Some of the countries that you will be buying government bonds from include:

• Brazil
• South Africa
• Mexico
• Russia
• Malaysia
• Thailand
• China
• Indonesia

On the one hand, bonds issued by the countries above have a greater chance of defaulting on their repayments. In turn, this does mean that you will have access to much higher bond coupon yields.

Platforms to Invest in Alternative Investments

Once you have decided which UK alternative investments you wish to invest in, you then need to find an online trading platform that gives you access to the asset. This isn’t always simple, as established brokers typically stick with stocks, ETFs, and bonds. With that said, we have done the hard work for you by listing three UK brokers that allow you to buy alternative investments online.

1. IG

Launched in 1974, IG is a well-known brokerage house located in the UK. It offers over 12,000 assets that you can buy online. This covers stocks, ETFs, funds, and more. There is an abundance of alternative investments hosted by the broker – all of which can be accessed by meeting a minimum deposit of £250.

You can combine some of these asset classes into a Stocks and Shares ISA to keep your investment tax-efficient. In terms of fees, dealing commissions start at £8. If you trade actively, you get this down to £3. The platform is regulated by the FCA and partnered with the FSCS. IG supports debit/credit cards and a bank transfer.

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What are Alternative Investments?

The term ‘alternative investments’ is somewhat of a loose one. This is because it can refer to several different investment vehicles. The general consensus is that this includes all asset classes outside of stocks, bonds, and cash.

Some examples of this include:

• Real estate (also via real estate investment trusts)
• Venture capital funds
• Hedge funds
• Private equities
• Cryptocurrencies
• Fine art
• Precious metals like gold and silver
• Peer-to-peer lending
• Derivatives contracts such as options, futures
• Real assets like wine and art

In order to access some of the aforementioned assets, you will need to use an ETF. This is because the ETF will have the required resources to gain buy and sell these instruments, as they are often located outside of traditional exchanges.

Additionally, some UK alternative investments actually sit within the stock category. For example, if you want to access the cannabis industry, you’ll likely need to buy shares in firms operating in this arena. Ultimately, a major appeal of alternative investments is that they typically offer a much higher yield than conventional assets.

At the same time, the risks will also be higher. Some UK investment professionals turn to alternative investments like hedge funds and private equity funds as a means to hedge against the stock markets. This is because there is often no or very low correlation between the wider health of the stock markets and that of alternative investments like real estate or gold, so they’re suitable for diversification.

Alternative investments have relatively illiquidity in comparison to traditional investments as there is a smaller amount of investors investing money in them. This liquidity is something you should bear in mind when considering alternative investment opportunities.

Important Features of Alternative Investments

There are heaps of different alternative investments that might be of interest to you. It’s important to perform lots of research before taking the plunge. This will ensure that the investment is right for your long term goals.

Level of Risk

All investments come with an element of risk. The key point is that some assets come with more risk than offers.

Crucially, you need to understand the level of risk that is associated with your investment decision. Think about some of the things that might result in the valuer of your investment going down – such as regulatory changes or defaults.

Conclusion

In summary, alternative investments are worth considering for two key reasons. Firstly, they often give you the chance of making much higher annual returns than conventional assets. In turn, the risks are, of course, going to be much higher.

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