4Q20 Insights and Outlook for 2021

February 11, 2022
15 minutes

In an unprecedented and unpredictable year, the trend toward online investing has accelerated as investors revisit portfolio allocations. We look back on 2020 and ahead to 2021.

The growth of online investing

There is a lot that can be said about this year, however we can all agree few could have predicted 2020 would have transpired this way. When news about the coronavirus began to emerge in China, we had limited insight as to the health and economic implications that would ensue. As the number of infections in the U.S. started to climb, and the curve indicating the number rose sharply, public markets reacted with increased volatility, and some experienced significant swings in valuation of their investments. As we near the end of 2020, and the news continues to emerge about the efficacy of potential vaccines, the pandemic continues to significantly impact restaurants, schools, travel, and many other businesses in local communities.

As the wake of disruption caused by the pandemic continues to unfold, some businesses are prospering, especially as technology companies gain market share. According to the S&P Dow Jones Indices, as of November 2020, Apple, Microsoft, Amazon, Facebook, and Alphabet make up 23% of the total S&P 500. According to data from WisdomTree and Bloomberg, the average percentage weight of the top five stocks going back to 1990 is 12.5%.1 While many can argue this is a crowded trade, it’s hard to contest the notion that technology has accelerated business efficiency by facilitating more tasks through technology. For example, online investment platforms, or direct to consumer channels, are seeing record volume as people are spending more time on their phones or computers today. Those who have kept their job and maintained their pay have had more discretionary cash available. Many individuals are not spending time at bars or restaurants, traveling for vacation, or sending their children to summer camps.

Inflation Protection Thumb

The growth of eCommerce is easy to see with the number of Amazon vans on the road and boxes on doorsteps. At the same time, 2020 has seen a surge in first-time investors with the help of mobile platforms like Robinhood. According to the commission-free investment platform’s blog, the firm was founded on the belief that everyone should have equal access to the financial system, not just the wealthy. The online platform, whose median age of users is 31 years old, benefits from offering fractional shares.

The reduction in fees and owning fractional shares have allowed investors to build wealth through minimal friction. According to Finfeed, a leading financial news source, Robinhood added over 3 million new customer accounts during the pandemic in the first ten months of 2020, and in June crossed 4.3 million daily average revenue trades.2

Contemporary portfolio composition

As we move into 2021, the old adage that “change is the only constant in life” remains true. Many investors may be thinking, will the world always be this volatile? Can my portfolio handle another shock? Am I in a position to take advantage of new potential investment opportunities? While no one has a crystal ball, it’s essential to take a step back and think about contemporary portfolio allocation. In J.P. Morgan Asset Management’s 25th annual Long-Term Capital Markets Assumptions Report for 2021, the traditional allocation of 60% to equities and 40% to bonds is “setting the stage for lower returns in the future.”3 “The 60/40 portfolio, the stalwart for many, many years of American investing, has been cut down to the point where it has reached just a 4.2% expected return,” said John Bilton, Head of Global Multi-Asset Strategy, at JPAM, who spoke on a webinar about the Report.4 “We need to recognize that a 60/40-only portfolio will struggle in the current environment.” In the summary of the Report, one of the four main takeaways is aptly titled, “Alternative investments: From optional to essential.”

Source: J.P. Morgan Asset Management – Global Alternatives. Portfolio expected returns and volatilities are mapped via asset classes available in 2021 Long–Term Capital Market Assumptions, USD version; data as of September 30, 2020. Mapping detail is as follows: Equity – 100% AC World Equity; fixed income – 100% US Aggregate Bonds; equity–like alternatives – 100% private equity; fixed income–like alternatives – 100% direct lending; hybrid alternatives – 70%/30% real assets/hedge funds in Alts C, 80%/20% real assets/hedge funds in Alts B and 90%/10% real assets/hedge funds in Alts A. Core real assets portfolio is diversified across global core real estate, infrastructure and transport. Hedge fund portfolio is modeled as 100% diversified hedge funds. For broader definitions of equity-like alts, hybrid alts and fixed income–like alts, please refer to Exhibit 2. The 30% alternatives allocations are funded as follows: Conservative portfolio – 30%/0% equity/fixed income; balanced portfolio – 25%/5% equity/fixed income; aggressive portfolio – 20%/10% equity/fixed income.

*Such Alternative/real estate return data should not be used to estimate returns of Jamestown Invest investments. While the investment vehicles on Jamestown Invest may acquire properties that meet some of the case study, they may acquire properties that do not meet such criteria. Further, property returns of Jamestown Invest investments may have a better or worse average annualized return performance compared to the case study as each real estate investment is unique in nature, which is inherently problematic for benchmarking to the composite returns of a highly diversified portfolio.

A diversified portfolio that includes private real estate investments could reduce volatility, given low correlations to more traditional assets, and offer the potential for enhanced returns. The chart above from J.P. Morgan’s Long-Term Capital Markets Assumptions Report depicts the expected returns and volatility across different weighting to asset classes, and with the addition of alternative investments.3 Historically, individuals have not chosen alternative investments, such as private real estate syndications and funds for several possible reasons. First, they may not have qualified for investments due to income or net worth limitations, which have changed over the past several years to increase access. Second, they may have been concerned about limited transparency, illiquidity, high minimum investment amounts, upfront fees, and confusing legal structures. The popularity of alternatives has increased significantly in recent years. Part of the explanation may be heightened market volatility and record low interest rates have made the traditional allocation to stocks and bonds feel less secure.

According to a study release in April 2020 by the Chartered Alternative Investment Analyst (CAIA) Association, members expect to allocate up to 24% of their portfolio to alternatives in 2025, up from only 6% in 2004.5 More so, according to a study conducted by PWC, North American pension funds have allocated 31% of their portfolio to alternatives in 2020, compared to less than 5% among retail investors. From this comparison, we can infer that individual investors might be underweight alternatives in their portfolio compared to larger professional investors. Investors are increasingly pursuing alternatives to meet their investment objectives – whether in pursuit of income or diversification.

In December 2019, we started Jamestown Invest because friends in our communities wanted to invest in our properties, but it was out of reach for most investors. So we embarked on a mission to increase access to commercial real estate through cutting-edge technology, allowing U.S. investors to participate in our projects for the first time. Jamestown Invest is a direct to consumer platform, connecting individuals directly with real estate managed by Jamestown.

CRE increasing

A look back on 2020

Whether you are familiar with our online real estate platform, or are in the process of considering diversifying your traditional portfolio by adding private commercial real estate in the new year, here is a roundup of highlights from 2020.

In 2020 we are excited to announce:

+288% year-over-year growth of new investors*
$8.3M
of assets under management*
2
investor property tours completed
4
investor channel partners added
30
educational insights on Real Estate 360
3
investor webinars

* as of December 1, 2020

We are pleased to be recognized in 2020 for our pursuit to democratize access to private real estate through Jamestown Invest.

What’s in store for 2021

As part of our mission to make private real estate more accessible and straightforward, we plan to continue technology enhancements to make onboarding and investing easier through our online platform. As Bill Gates summed up, “investing in tomorrow’s technology today is more critical than ever.” We are excited to have added three self-directed IRA custodians in 2020, AltoIRA, Millennium Trust Company, and STRATA Trust Company. These custodians, with a combined $30 billion of assets under management, allow investors to access our pre-custodied investment offering using their tax advantaged accounts online.

At Jamestown, one of our greatest assets continues to be our investors. Our Investor Relations Team enjoys building trust and educating investors and answering any questions about our offerings or helping with setting up an account online. In a recent survey, 50% of our investors have five years or less experience in commercial real estate investing. To address topics that may be of interest to this growing audience, we plan to add more educational material on Real Estate 360. As a fully integrated real estate investment and management company with a 35+ year track record, we plan to tap our in-house real estate professionals to explain topics pertaining to acquisitions, asset management, leasing, portfolio management, development and construction, and capital markets, and dispositions.

With a challenging year coming to an end, planning for the future when there is much uncertainty is essential in balancing risk and return. For nautical enthusiasts, many can draw a correlation to the challenge of navigating the water when cold air moves over warm water and unexpectedly produces fog. Boaters train to not become overly reliant upon navigation aids such as a GPS. Misaligned radars have produced many tragic stories of boaters who have focused on wrongfully calibrated technology. A well-trained navigator practices steering from buoy to buoy with a map to prepare for these circumstances. Using this lesson as inspiration, investors may consider a disciplined and thoughtful approach when allocating capital during times of uncertainty.

Jamestown is a well-capitalized, stable and reliable real estate firm with a long-term view. Jamestown co-invests heavily into all its Funds, ensuring alignment of interest with “skin in the game” participating at the same terms as our investors. Drawing from the nautical reference, Jamestown has weathered many storms and is well-positioned to take advantage of potential dislocations in the market with an experienced management team.

by Jamestown Invest

Jamestown Invest is a direct-to-consumer platform, connecting U.S. individuals directly with real estate managed by Jamestown.

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