The Other Asset Class
As the economy continues to recover from the 2008 financial crisis, it’s clear that nearly all domestic asset classes in the United States are on the upside. The Dow Jones Industrial Average is near a four-year high, commodities are up thanks to the devalued dollar and despite recent pullbacks, gold and silver have also enjoyed a meteoric rise. Even high-yield bonds are back in demand.
At the center of all this is the driver of economic growth that led the country for years with virtually no declines: the real estate market. There is still a fear that despite all the progress we’ve made as a nation over the last four years, the chance for a double-dip remains. Both commercial and residential real estate remain key drivers for asset management firms, pension funds and banks. Structured products are back in the spotlight and up until now, it remained to be seen if a true recovery was possible.
While we’re not out of the woods yet, things are looking pretty sunny. Commercial real estate is chugging forward, especially in major cities, where property values continue to climb and demand for physical buildings are in, much to the delight of pension funds and other investors. REITs aren’t just paying high double-digit dividends; they’re outperforming blue chip stocks with ease. Names like CoreSite Realty Corporation and Duke Realty Corp. are up 41.7% and 23.7%, respectively. And there’s plenty more where that came from.
On the residential side of things, there are two arbiters of the market that are showing signs of progress. The first would be what’s presented to the retail side of investing: homebuilders. The S&P Homebuilding Index cranked out a 4.8% return last week with a slew of homebuilders reporting better-than-expected housing orders. Even the illiquid PowerShares Dynamic Building & Construction ETF is up 17.6% year-to-date.
The other arbiter is the issuance and demand for mortgage-backed securities. Things are healthy in that space as well, with Ginnie Mae issuing a sizable $29.2 billion of MBS in March alone. According to one bulge bracket investment bank, trading has been on the rise as well. Government sponsored entities like Ginnie and Freddie are in no shortage of mortgages to securitize and sell to the secondary market.
“My desk’s activity has really picked up in 2012,” said one structured products trader at the bank. “We’re winding down portfolios like it’s going out of style. But in all seriousness, things are going well. We’re optimistic.”
This optimism on both fronts of the real estate market are a good indication of things to come. The Federal Reserve and the Treasury Department are making a killing on reselling distressed assets it bought at the height of the crisis. But until the Main Street consumer starts seeing a boost in the value of their home, there remains much work to be done.
The next focal point of the crypto market will be over-the-counter derivatives.
Overall trading volumes across all products fell 8% from 2020.
Development of a transparent derivatives market is a critical inflection point for the nascent asset class.
Institutional traders are finding it harder to achieve their trading and investment objectives.
A change in focus from gross to net exposure means more demand for optimisation and compression to work in tan...