Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
Diversification is a time-honoured principle in investing. However, the conversation is often focused on “traditional” assets, such as equities and bonds (e.g. gilts). Yet, the diversification opportunities are far wider. Alternative investments could be a great way for specific investors to spread out their risk and access unique opportunities to generate promising returns.
Below, we outline some of the key alternative investments that UK investors could consider to increase their portfolio diversification. We hope these insights are useful. To learn more about our EIS projects and other early-stage opportunities, visit our portfolio page. For enquiries regarding our latest projects and funding, you can reach us via:
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#1 Commodities
Let us start with one of the more familiar asset types: commodities. Commodities are mostly natural resources like oil and precious metals such as gold. They are often popular as a way to hedge against inflation since they have no proven relationship with equity markets.
However, certain investors (e.g. Warren Buffett) do not like commodities because, unlike firms, they do not “produce” anything. To address this, investors might consider finding attractive commodity mining firms and adding these to their portfolios.
#2 Collectables
These refer mostly to physical items with a decent market value that is expected to rise (or be retained) over time. Examples include classic cars, paintings, rare wines and stamps.
Collectables can be more fun and interesting than many other asset types. There is often a social scene attached to them, too. However, you need to preserve, maintain and store them over long periods. This can incur a high cost in terms of time, money and effort.
#3 Angel investing
Do you have a passion for startups? Working with businesses in their embryonic stages can be exhilarating and rewarding. If you can find startups that “go the distance”, the returns could enter the double or triple digits.
Being an angel investor typically requires granting a significant lump sum (e.g. tens of thousands of pounds) to a startup in exchange for an equity stake. This naturally presents a high financial barrier to entry.
Angel investing is also a very “hands-on” style of investing, so you must be sure that you have the time, motivation and skills to mentor startup founders. It can help to join an investor network, like ours at Bure Valley Group, to find like-minded investors.
#4 Private debt
Sometimes called private credit, private debt refers to investor loans to firms. These loans are not given by banks or public markets. Firms might turn to private debt when they have important growth plans, and banks are unwilling to lend due to wider economic conditions.
Investors can achieve returns on interest payments. These are likely to be higher than interest rates available from cash due to the higher risk levels involved.
Here, investors need to conduct thorough due diligence before investing (e.g. is the firm turning to private debt because banks can see a problem with their financials?).
#5 Real estate
Many investors are attracted to property as an investment. However, you are not necessarily restricted to Buy to Let and similar residential properties. There may also be commercial opportunities – e.g. shopping malls, offices and warehouses.
Residential property investments can provide regular cashflow from tenants paying rent, as well as equity appreciation (e.g. as the house/flat rises in value). Cerain individuals can invest directly in commercial properties by buying shares or purchasing outright.
However, for many, investing in commercial property funds, such as unit trusts, Oeics, or investment trusts is more realistic. The funds directly own the properties and pay you a share of the growth/income. Alternatively, investors might choose to invest in property-related companies and enjoy capital gains from the appreciation of the shares (or by taking dividends).
#6 Cryptocurrency
Cryptocurrencies are digital or virtual currencies that use cryptography for security. Well-known examples include Bitcoin, Ethereum (ETH), Ripple (XRP) and Litecoin (LTC).
Blockchain – a decentralised ledger – is the technology underpinning most cryptocurrencies. Most investors buy cryptocurrencies to achieve capital gains, holding the assets until they appreciate due to rising popular demand.
Investors should note that thousands of cryptocurrencies exist. It can be difficult to conduct due diligence in such a vast landscape. Moreover, many of them largely follow bellwether cryptocurrencies like Bitcoin or Ethereum, making diversification difficult within the cryptocurrency market itself.
#7 The alternative investment market
Many exciting and growing UK companies are not listed publicly on the main London Stock Exchange (LSE). Rather, they are listed on the LSE’s prominent sub-market, the Alternative Investment Market (AIM).
AIM holds over 800 firms, many of which are seeking an initial public offering (IPO). However, they might have exhausted their access to private capital. The market has raised over £130 billion as of 2022 for more than 4,000 companies.
AIM shares are widely seen as more speculative than those on the main LSE due to the lower regulatory requirements involved with getting listed on the exchange. However, the rewards can be greater than those offered by large, established stocks. Again, due diligence is required to sift through different AIM candidates as investors consider options for their portfolios.
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