Where to invest $1 million right now
Five advisors offer their top picks, from aggressive secondary funds to more defensive infrastructure plays
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Asking investment advisors where they would put $1 million today is not as fanciful a question as it might seem. Portfolios at family offices are often worth tens of millions if not hundreds of millions of dollars, so $1-million is just a small fraction of the overall wealth.
In turn, they are thus able to allocate this sum to more exploratory, speculative investments. Even so, in answering the aforementioned question, these five advisors to HNW and UHNW clients have offered a diversity of approaches from conservative to aggressive.
Aggressive approaches
Bargain shopping for private deals: Venture capital, other private equity and debt allocations are fertile ground for family offices seeking potentially outsized, long-term gains — in exchange for a lot of risk. Yet amid higher interest rates, some investors in the private markets are seeking liquidity in this generally illiquid asset class, which creates a value play for intrepid investors, says Peter M. Jessiman, chief executive officer of Jessiman Family Investments Inc. in Winnipeg.
“We’re actively deploying capital across a number of … private equity investments with market uncertainty helping us as buyers,” Jessiman says. His single-family office is avoiding venture capital (VC) funds focused on early- and even late-stage companies due to ongoing risks, including still-high valuations.
“As an interesting alternative, however, with the hypothetical $1 million, we’d put it into a few private equity secondary funds,” he notes.
Jessiman says his firm has in fact recently invested in secondary fund money managers such as Whitehorse Liquidity Partners that provide liquidity for individuals looking to sell private investments, often at a discount.
“We see annualized returns in the mid- to high teens [per cent],” he adds about this strategy of strategically buying into this distressed asset class.
A long-term bet on longevity: Advances in biotech, cloud computing and artificial intelligence are leading to a golden age of health-care research promoting longevity and its commercialization, says Anthony Lacavera, Toronto-based founder of Globalive, previously a holding company for technology focused companies, including Wind Mobile.
“This is where I think the most interesting opportunities are today,” he says.
His single-family office has allocated about 5 to 10 per cent of its portfolio to this theme. “It’s early, so it’s definitely VC,” Lacavera adds.
Among those investments are startups led by leading researchers who are addressing diseases related to aging, including David Sinclair at Harvard, whose work focuses, among other research and commercialization endeavours, on targeting inflammation, increasingly considered a key culprit in age-related diseases such as cancer.
“Another individual who I follow closely is Richard Isaacson out of Cornell [University]. I have invested in his digital health startup focused on cognition and slowing cognitive decline,” Lacavera says.
More defensive approaches
Bonds at a discount: Fixed income has become an interesting asset class recently as interest rate hikes are expected to slow if not plateau, says Eric Weir, executive vice-president responsible for investment management at Northwood Family Office in Toronto.
“There is a concept around discount bonds regarding their tax advantages,” Weir says, a strategy involving buying bonds trading below par, issued before interest rates began their ascent. Investors purchasing these assets today not only receive higher yields but tax efficiency.
“If a bond trades below par, a portion of the return will be taxed as a capital gain versus interest,” he says.
As well, if interest rates fall amid a recession, discounted bonds increase in value, providing upside.
Go long: Long-term bonds are increasingly of interest as the risk of recession keeps rising, says Thane Stenner, senior portfolio manager at Vancouver-based Stenner Wealth Partners+ at CG Wealth Management.
“It may seem contrarian,” he says, noting bonds with maturities of 10 years or more have seen their value hit hard by rate hikes. “But the data we’re seeing points to a probable recession that could be more challenging than expected.”
In turn, long-term bond values could stand to benefit most, especially if interest rates decline, he adds.
A simplified way to get exposure is through funds such as the PIMCO 25+ Year Zero Coupon US Treasury Index (ZROZ) exchange-traded fund (ETF), Stenner says. The ETF’s value declined as rates rose, but its value soared amid falling rates at the pandemic’s onset.
A balanced approach
Investing in roads, bridges and cell towers: If VC is offence and fixed income defence, then investing in infrastructure offers a bit of both, says John De Goey, portfolio manager at Designed Wealth Management in Toronto. “If you have $1 million to invest in September 2023, you should look to things that are resistant to a significant market downturn, like infrastructure.”
Infrastructure addresses many risks in the market today, from stagflation to another financial crisis to high stock valuations, says De Goey, host of the podcast Bullshift and author of the recently published book Bullshift: How Optimism Bias Threatens Your Finances.
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Typically, private-sector spending retreats amid recessions and the public sector steps in with new funding for infrastructure, he says. That can be a tailwind for companies involved in clean energy, construction, engineering and even 5G cell towers.
Plenty of private infrastructure and related real estate deals are available, De Goey adds. But more liquid infrastructure exposure for the portfolio can be found via mutual funds or exchange-traded funds such as Franklin ClearBridge Sustainable Global Infrastructure Income Fund, providing a yield of about 4 per cent, he says.
Infrastructure is not bulletproof, though it’s less affected than other equities in a downturn because “you can’t have a functioning society without infrastructure, recession or not.”
A growing need for raw materials: Commodities are an interesting play as their aggregate pricing and performance relative to equities are at “generational lows” and “arguably are the cheapest they’ve ever been,” Stenner says.
Prices may be down from the start of war in Ukraine but, long-term, commodities will see expanding demand simply as a result of a growing global population.
“And because there has been so little invested in commodities infrastructure-wise with not enough new mines, for example, there are capacity constraints,” Stenner says. “We’re talking, potentially, 100 to 400 per cent moves upward in a three- to five-year timeframe.”
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