Alternatives, Dividends Will Lead Way in Overvalued Stock Market

Alternatives are now an investor’s best option with stocks overvalued and bonds no longer a safe-haven in the face of a rising rate cycle, said Eric Ervin, CEO of Reality Shares. 'Investors need to find places where they can earn a return in a sideways or down market,' said Ervin. Still, in Ervin’s opinion there is a lack of true alternative investments in the market with too many vehicles that are over-diversified and unable to offer alpha or real downside protection. Along those lines, he said too many ETF products are overly similar, offering exposures that are nearly the same, with slight variations in weighting on the same set of stocks. In his view, the ETF industry needs to focus more on true innovation and bringing new strategies to investors. 'How many different flavors of peanut butter can you have?' asked Ervin. 'Because most of the ETFs are truly just different flavors or the same peanut butter in a different package. It’s not really differentiated.' Ervin said dividends are still an attractive way to approach investing, both as a measure of true corporate health and as a distinct asset class in their own right. He said the major banks such as JP Morgan, Morgan Stanley and BNP all publish research to encourage investors to look at the dividend markets, and the CME is just launching dividend futures as another way to invest in dividends. Ervin’s company launched the Reality Shares DIVS ETF (DIVY) last year. The DIVY, which is up 70 basis points year-to-date, provides exposure to the aggregate value of ordinary dividends expected to be paid on a portfolio of large cap companies listed globally. The fund does not hold actual stocks, but dividend swaps, listed option contracts, and futures on indexes of large cap securities. 'Dividends are likely to fall a little short of a record fifth straight year of double-digit growth, but we expect them to continue outperforming their long-term 6% to 8% average growth,' said Ervin.