Hello everyone and welcome to the session. It is my pleasure to introduce Austin Root, the Chief Investment Officer of Stansberry Asset Management, where he oversees investment strategy across the firm's portfolios. Now to our live viewers, if you have questions or comments throughout this session, please feel free to share them in the live chat box. It's on the right hand side next to the video player. And with that said, Austin, I will hand the mic over to you. I'll be right here if you need me, but the floor is all yours. Austin Root, M.D.: Perfect. Thanks very much, Charlotte. Thanks for that introduction. Thank you all for viewing. And on behalf of all of us at Stansberry Asset Management, or SAM as we like to call ourselves, thank you. Thanks for joining and welcome. We're excited about this topic. We want to make great use of your time. I think it's very timely. Many individual investors and institutional investors alike want to allocate more to alts. And I think we have a high conviction view on what the best and worst areas are to be allocating to right now. So with that, let's get started. First, why? Why would we be wanting our clients and why would we recommend folks allocate to alternative assets? In my mind, in our mind, it's really just one main reason. And that is for better risk adjusted returns. Seeking better risk adjusted returns that alternative assets can provide. In other words, higher returns over the long run relative to the risk you're taking. That's why to do it. Now let's start with a portfolio without alternatives. This is one of these typical charts you see where you have volatility or risk across the x axis or horizontal axis and total return portfolio returns across the y axis or vertical axis. Austin Root, M.D.: These dots, these are long term averages of returns and volatility with different asset mixes. The one in the middle, the orange in the middle is that prototypical 60-40 portfolio, 60% equities, 40% fixed income. But what you can see is as you move up the level of fixed income in your portfolio, you do dampen total expectancies. You do dampen total expected returns over the life of your allocation, but you considerably reduce volatility. And downside volatility in particular is what so many investors should be looking to avoid. Because that's really what you're really trying to avoid is that calamitous draconian outcome where you lose material parts of your capital portfolio and can't you can't recover over the long run. When you add alts and this this is this is data going over many decades. You do kind of something that Ray Dalio would say is the holy grail where you're moving this event horizon up into the left. So adding alternatives not only lowers your volatility of your total portfolio, but also raises the expected returns and lifetime returns for your portfolio. We think of this as Northwest quadrant investing, and this is really what alternative investments done the right way can do for a portfolio. I think the first question that our clients have and you should have is okay, how exactly does that happen? How how does this does this occur? Well, in my mind, it's it's two main reasons why alts are able to do this. The first is an illiquidity bargain. For a portion of your portfolio, you will no longer have full liquidity. But if you're willing to do that, then over many decades of data, the the illiquid assets like for like equities, private equity versus public equity, private credit. or private fixed income versus public do generate stronger annualized return. M.D.: There's no free lunch because liquidity is super valuable to you and your portfolio, and that's why we always recommend only a portion of an investor's portfolio, be they individual or institutional, be allocated to illiquid strategies. You know, in my mind, this is kind of table stakes for illiquid alternative assets. They must provide higher levels of return, all else equal, because then why else would we want to allocate to them? If you had a public or a fully liquid offering and an illiquid offering and they generated the same total expected return, everyone would choose the liquid offering. So by putting part of your portfolio in illiquid assets, you are, you know, generating higher return, but that is the bargain that you're making. There's a second piece of this, and that is that alternative assets, by and large, broaden your investment base, they increase the number of investment opportunities you have. And in so doing, lower the correlation of your total overall assets. That's what we really want. We want assets that don't move completely in lockstep with one another. That provides you ballast and it also provides the opportunity for when one asset is failing, another one can perform. And again, not moving in lockstep all the time. How do alternative assets do that? Well, one great point is that I like to talk with clients is if we think about large companies, companies with 100 million in assets and revenues or more, I think it would be generally the expectation that most of those are publicly traded companies. In fact, you know, as of data last year, only 87% of companies in the US with $100 million in revenues or more are publicly traded. So you have a narrowed, you know, definitively narrowed your investment base if you're only investing in publicly traded securities. So, so that that kind of gives the the why and the how let's sort of go into our view of the three worst alternative investments to own right now and in the three best. So worst number one is actually any alternative asset if you own just one. In other words, do not put all of your alts eggs into one basket. Now, why is that? Well, you know, Howard Marks likes to and this is these charts are courtesy of Howard Marks and Oak Street Capital Management. He likes to go back to the, you know, very academic chart, and this is a single asset chart similar to what I had shown before, but that was a multi asset chart. So it had a bit of a curve in a single asset chart, you sort of look and say, Okay, we plot return relative to risk and the more risk we take, the higher the return generally is the case. And that's and that's true, but what he likes to point out is that's on average what you really should look at it and what he explains is that the the probability of outcomes expands quite a bit the more risk you're taking. In other words, it's a quote Howard, while expected return rises along with risk, so, too, does the probability of lower returns and in many cases even losses. This is why we think it's so important to not just have one alternative asset allocation to your portfolio, just like diversification matters. And investment selection matters in public market investing. It absolutely matters in alternative investing and in fact it matters more because if you look back at this chart the amplitude between the very great returns that you get in the private market and private markets or alternatives and the very bad returns that you get or the very bad outcomes is actually much much greater than it is in the public markets across asset managers. So if anything diversification and investments manager selection matters more in private markets than public markets and yet we see many investors that have nicely diversified public market investing and then allocate just a one private market alternative asset don't do that. Worst alternative asset number two for the most part right now we do not like interval funds or quote unquote. Semi liquid alt alts funds. And why is that well. We learned this back in the global financial crisis in 2008 we learned it with Silicon Valley Bank a few years back you do not want to mismatch the duration of your assets with your liabilities if you do that you rely on others to not panic when you decide that you want your money back. This is this is what private credit funds are working through right now in in this interval or semi liquid alts funds. it's not by and large it's not. That the results from a credit perspective or an investment perspective are bad in fact all of the the companies that have publicly reported results are fantastic. You know the investments are strong and performing non performing loans are very very low much lower than many of the public market counterparties at same levels of risk. But the issue is many investors in these semi liquid funds are starting to get worried about what's going to prospectively happen. You know that that makes sense frankly. If we have disruption in certain businesses and industries coming from A.I. and other technological changes that are occurring and people get worried. But, if you're in one of these it semi liquid vehicles that you think you can get your liquidity back anytime you want, you just can't they limit it to 5% of total capital per quarter. And unfortunately, if everyone runs for the exits you would never if everyone wants their capital each quarter and only 5% is able to be returned and the manager upholds that. Sticks to that actual mandate, you would never get your capital back so worst asset number two at least for right now is interval funds and semi liquid alts funds. Okay, number three, this one might surprise some folks but we're advising our clients that for the most part again these are these are general recommendations avoid venture capital and private equity why well. Over the long run, these are great assets, but there are we believe investing is seasonal and this is just not a good season to be allocating new capital to this asset class. Think about the environment that we're in, we have high asset prices relatively high asset prices across markets public and private. It's a IPO window that's mostly closed that's bad for both venture capital and private equity exits. We have tight lending standards from banks, of course, that's more acute for private equity investments that use leverage to generate part of the returns and make acquisitions. But it's also bad for VC because a buyer of their assets can't pay as much if they can't get debt capital to finance it or if it's very expensive debt capital, which is the next point. M.D.: We have relatively high interest rates, not just sort of the the US Treasury yield curve, but also what you're paying as a spread on top of that for non mega cap super high investment grade bonds. Those are those are still tight to Treasury, but if you're looking in the private markets private credit capital is is expensive. And so then the final point here is that there is lots of dry powder already waiting to be deployed. M.D.: Now, again, if you're already in the market, if you have investments in venture capital and private equity, that's not a bad thing that that means that, you know, the investments that you've already seeded could be harvested by some other capital in the market at a reasonably attractive price for you. But if we're thinking about prospective capital new allocations we'd much rather there be not very much capital searching for deals versus versus lots of capital. In fact, let's just think about the opposite of these five things. The perfect the perfect market for venture capital and private equity are when you have low asset prices when the IPO window is open when banks are really willing to lend when you have relatively low interest rates and there's not much. Other capital competing with you for deals. So what do we like what are the best alternative assets. In the market today. Well, the first one is. You know, many people use alternatives to upgrade the 60 in their 6040 portfolio and that's how you'd use venture capital or private equity. We're recommending you think about upgrading the 40 in your portfolio that ballast create better income and total returns more ballast lower correlation with the overmark overall market in other words. Do a better job of what publicly traded fixed income is supposed to do for your 6040 balanced portfolio. If we think back to 2022. You know, that was when the 6040 portfolio really let many investors down. It's when public publicly traded debt fixed coupon debt really let focused folks down because risk premium went up. Inflation went up. Interest rates went up. And that not only brought down equities publicly traded equities, but also publicly traded bonds. The suggestion I'm making does not have a chart like this, in fact, with floating rate debt as prevailing interest rates go up your returns can actually improve assuming that the credit quality is solid. And so what is my recommendation? Well, against the prevailing rumors or concerns in the market, we think the best investment in alternative assets right now. Is private credit the right type of private credit where you can generate really world class risk adjusted returns. Now let's go back and think about that list of of things that make it not a good season investment season for private equity or venture capital except for the first one. No one likes high prices. All of these are fantastic seasonal situational outcomes for private credit. We you know if the IPO window is closed, then our private credit capital is more valuable. Same for if lending standards are very tight from banks and banks are pulling away from from risk capital that makes our our capital more precious as private credit lenders. Again, hot relatively high interest rates, not only on the yield curve, but spreads to treasuries in the private markets are very attractive. And also, we actually do like it when there's lots of capital out there willing to be deployed. That means there are deals that want the capital that private credit can provide in many cases. So we believe it's the right time for private credit, but it needs to be the right kind of private credit. And don't get me wrong, we will see some defaults. We will see some challenges. These are the this is sort of the mainstream traditional approach where most of the private credit is going. We are avoiding these types of situations, so we don't want junior unsecured debt. We don't we really by and large do not want to finance private equity sponsored debt financings or transactions. With competing bid competitive bidding processes where it's least common denominator and you're not providing strategic capital. The larger vanilla deals are getting done at lower interest rates and then there are some great fantastic investment managers out there. Where their business model is better, the more capital they deploy and that is the overall investment manager goal. We are largely our targeted approach at Sam is the antithesis or different than than a lot of those things. By and large, we're focused on senior secured debt. We want to be the first lien. We are avoiding those sponsored deals and the competitive bidding. We actually want not only to provide capital to small and middle market situations, but we want to be. We want the private credit to be the strategic capital if you're if you're the junior debt in a private equity deal the private equity and sponsor is the strategic capital. My old finance professor used to say who holds the screw. Well, we want to hold the screw driver as a as a private credit lender and investor. And again, we also want to focus on those managers that have high RR IRRs or internal rates of return is their goal rather than lots of capital being deployed. You know, we've done this a lot with our clients across different types of corporate private credit. I think currently, while we still like many of those situations quite a bit. Currently, our favorite. It takes advantage of what we consider one of the most stable asset classes in the world, one with a persistent imbalance between demand, which has been very, very high for decades. Versus supply, which has been very has been lower than demand consistently and persistently over the last two decades. And that is residential real estate. Now, I think a lot of people don't think of residential real estate as stable because we think about back to the global financial crisis, but that was the exception that makes the rules by and large home prices go up and and or at least they stay steady. M.D.: So when we're lending to something if we can lend it very low loans to values great and we can be senior secured great and if that asset class is very stable in terms of its price even greater. So that's what we're looking to do. Our you know so again, we think we can generate equity like returns at much lower levels of risk. In targeted niche areas of residential real estate, we talk about the the fundamental the fundamentals being very favorable. The total returns we're expecting here are 10% to mid teens in that range very very attractive. This is an inflation hedge in real estate in general is an inflation hedge and look we are actually focused on those unique areas where the banks are not this is not. Conforming 30 year loans there's a market for that and we all can get a general a low mortgage because of that market. These are more situations where the banks have pulled back from for risk reasons and regulatory reasons bridge financings. M.D.: Construction loans fixes and flips short term financing is kind of six to 18 month financings for single family homes, but also up to small multi family smaller apartment developments and you know townhomes and condominiums in between also very large high priced luxury homes that don't fit into. You know the Fannie and Freddie conforming a bucket all of those areas if you have. A key attribute if you have sourcing if you have the a great sourcing great underwriting you can generate really fantastic returns at much lower levels of volatility and correlation real estate private real estate over. Decades has had very low levels of correlation to other parts of the market in fact negative correlation to. To public bonds again because if interest rates and inflation goes up that's bad for fixed income bonds but it's actually good for the value of your of your real estate. So that's our that's our number one recommendation I get two more next one is. The next two are actually. Areas where you don't have to sacrifice liquidity. Liquidity is so valuable and so as you're thinking about making your portfolio more balanced. There are ways to upgrade and up tool your liquid part of your portfolio and the first one is you want to get hedged and provide ballast. With an asset that has become hot lately we've been talking to clients about it for a long time for a decade and that is owning gold. Obviously gold prices have done very well recently and we see an outlook with dollar debasement with continued central banks across and and Treasury. Governments across the world. What looking to debase their currencies and deficit spend to induce more growth of the economics or the economy that gold should continue to do well. And you know to just today it's back over fifty two hundred dollars an ounce. M.D.: But are really our main recommendation here is this is a diversifier and a chaos hedge and a low correlation asset think back to the tech bust the blue lines in these three charts are the S&P 500 the red line is gold price. Think back to the great financial crisis. And again think back to the covid crash gold massively outperformed in all of these any and even went up during these chaos. It situations or confidence crises. Now our our approach at Stansberry asset management is to not only own the physical metal, but also diversify across different types of gold miners. We like the major producers only when they generate strong returns on investment. This is a tough business. There are some bad operators in there, so we don't want to own every gold miner on the planet. We like to own emerging producers when they have great pounds in the ground, but specifically when they're in good jurisdictions. And then finally, the best return on investment or capital efficient way to participate in the in the precious metals business is to have a streaming company or a royalty company. So we like those businesses quite a lot. For our clients, we've generated strong risk adjusted return owning a blend of these. Excuse me, the final. Asset we want to talk to you about the best alternative asset that is also not sacrificing liquidity is a way to get tactical. In other words, we recommend our own strategy here. We were you know recommend our own cooking here, but we have a strategy called tactical select now we like to call it our best of both worlds. We really what we're doing is we're marrying deeply research fundamental investing with quantitative risk management and quantitative systems. You know, we find too many investors are either this or that their growth or value their private markets or public markets. And frankly, they're either fundamental or their quants were marrying those two together in this strategy and trying to take the best of both worlds. So if you think about our funnel here, we start with our favorite ideas from a fundamental perspective, we own them in one of our other strategies first. Then we overlay a proprietary blend of quantitative risk analytics we use some outsized tools, but we also most of what we do is our proprietary list of things that we're monitoring the here's a. An incomplete list of some of the things that we're looking for as numbers are reported and they are improving so positive and then a positive derivative that's a good thing. But we want to make sure that we're not over our skis in terms of any one sector when it's when a industry is strengthening that's good when there's positive momentum that's good. We want to lower volatility we want to have trailing stops on in certain situations and we're also looking for relative value. Here's an example of what tactical selected for us, you know, from a fundamental perspective, Fiserv look to be doing well management team was talking about how great. The story continued to be and yet we were seeing from a quantitative perspective things really breaking down. So we exited and you know the fundamentals and the stock price followed so saved our investors quite a bit in that situation. Here's what every investor should try to be doing generating returns ahead of the market at lower levels of volatility and in particular much lower levels of drawdown. So if you look at our three year returns from the time that we started this this strategy, we've outperformed the market by 370 basis points roughly annualized per year. M.D.: We've done it at three quarters of the volatility, but most of that lower volatility is on the downside capture or the downside avoidance. M.D.: Where we had, you know, less than 40% of the max drawdown that happened around, you know, the tariff and liberation day. So what that means is that we generate strong alpha or lots of return relative to the risk we're taking. Parker Hannafin is an example of the type of company that we really like that fits in this tactical select where strong secular story, you know, motion and control. We're just moving more people and things and fluids around the world and around your area as we do that companies like Parker Hannafin will do will do very, very well. They're very integrated across a lot of growth secular growth parts of the world. Austin Root, So in my last minute, I just want to focus on the fact that alternative are just a part of what you want to do with your with your investments and really the the entire picture should be focused on your goals. We have a strategy that's we have a investment offerings that are based on whatever goals you want. Most of our clients have some combination of this. They determine that with financial advisors and wealth managers that really help them figure what that is. We'd like you to take an advantage of a complimentary review scan that code and we'd be happy to provide a complimentary review for all the things that we do for clients on their behalf. Thanks very much. Thank you so much, Austin. I think we can squeeze in this one question from audience member Mr. Castleman. He's saying now that interest rates are coming down, at least somewhat, and there's soon to be a new Fed chair. What impact do these have on your re projections? On which projections? On your re projections. Real estate projections. Okay, yeah. So yeah, that's a great question. M.D.: I think that we're hopeful that lower interest rates and particularly the spread of mortgages relative to interest rates, it provides a support for asset prices. So asset prices move based on those conforming Fannie and Freddie loans that individual and institutional investors can get. We can provide capital around the perimeter of that. So we're actually very okay with slightly lower interest rates. I think it's still generate really strong returns in the type of credit that we're looking to offer. I will caution, though, our outlook is not for much lower interest rates until or unless we have a economy that softens. So our outlook is, you know, particularly after the Iran conflict, inflation is going to stay elevated. And so, you know, as long as the economy is strong, we won't necessarily see lower rates. M.D.: Well, Austin, thank you so much again for joining us and for getting that question answered. And to those of you watching live, thank you as well for joining. Be sure to stay tuned. Be sure to check out Stansberry Asset Management's virtual booth. They do have a prize drawing for you to enter. Hopefully you will win. I wish you luck. And with that said, I hope everyone has a wonderful rest of your day. Take care.