Tuesday, February 15, 2011

Froehlich, ANTs

ANTs: Using Alternative and Non-Traditional Investments to Allocate Your Assets in an Uncertain World by Dr. Bob Froehlich (Wiley, 2011) is a survey of asset classes that can be used to diversify portfolios. They are by and large the usual suspects—commodities, currencies, real estate, infrastructure, TIPS, and collectibles.

Floating rate securities, another suggestion, are not normally included in the standard lists, so let me spend a little time on them. The rationale for investing in floating rate securities is as a hedge against fixed rate securities during periods of rising interest rates. “When interest rates rise, all of your fixed income investments will decline in value. However, if you also have exposure to floating rate investments, they will increase in value and, depending upon your asset allocation to this asset class, could more than make up for what you lost in fixed rate investments.” (p. 93) Froehlich advises investing in a mutual fund that offers a mix of senior, secured, floating bonds.

One of the strengths of this book is that it offers ways to invest in alternative assets that are accessible to the retail investor. Let’s say you would like to invest in art. Well, that could be a rather expensive (and potentially illiquid) proposition. But it turns out that there is a fund (the Sharpe Art Fund) that invests in worldwide art objects. Granted, it has a 2 and 20 structure and hasn’t exactly knocked the ball out of the park, but at least it has been profitable every year since it was launched in 2006.

Froehlich does not recommend do-it-yourself investing. He is adamant that anyone looking to make alternative investments must have a financial advisor—and, of course, the right financial advisor. But whether the reader accepts or disregards his dictate, the material in this book provides the investor with valuable research tools.

A footnote. I don’t make a practice of railing against book designers on this blog. After all, I worked hand in hand with book designers for many years, some of them among the very best, and I have great respect for the work they do. But in this case I feel compelled. Ants are everywhere in this book--part titles, chapter titles, chapter openings, and inserts. They vary in size, from tiny to a whopping 5 inches high on the chapter openings, thereby hopelessly distracting the reader from the text. Moreover, although I don’t have an ant phobia, I started to itch while reading the book. All in all, a bad design idea gone viral.

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