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Avoiding the Emotional Roller Coaster of Market Volatility

October 01, 2021

Fortune Magazine said it best earlier this month.

“The S & P 500 is having flashbacks – to March 2020.”

This, after the S & P 500 wrapped up its worst month since March 2020 (back when the market took a pandemic-related beating) by falling 4.8%. At the same time, the Dow Jones Industrial Average dropped 546.80 points, and the Nasdaq fell by 5.3%. Not a great way to wrap up the third quarter of the year. And especially poignant given how unnervingly calm the quarter was prior to September.

WealthCo has just newly released a video outlining our evolution of investing. In it we speak to the emotional roller coaster of investing, a sentiment which rang true for many these past few weeks. In it, we also speak to our investment philosophy and how we have helped our clients to step off the emotional investing roller coaster and elevate their investment strategy.

Our investment approach paid off in spades this month, at a time when many were losing sleep over the market volatility. We had, not one but two, long-term investments that came to fruition.

Win #1 - Star Metal Residences

Star Metal Residences is the first-to-market, luxury, hi-tech multifamily offering in West Midtown Atlanta. The development includes 409 luxury residential units and 16,300 square feet of prime retail space.

“Star Metal is a really fantastic story,” Stephen Logan, Senior Financial Analyst at WealthCo shares. “It really demonstrates why patience is required in order to realize returns in long-term private equity investments. Typically, these types of securities are subject to the J-curve, meaning it takes time for committed funds to generate returns as the project develops. For our investment in Star Metal Residences, this was well worth the wait, and the investment resulted in a huge win for our alternative growth fund.”

WealthCo initially invested in Star Metal in 2018. It took two years for the property to be fully developed, and the liquidity event earned us gross internal rate of return (IRR) of 16.37% and a gross multiple on invested capital (MOIC) of 1.63x.

Win #2 – Spartan Ridge Industrial

Spartan Ridge Industrial is a distribution and warehousing facility strategically located between Atlanta and Charlottetown, and minutes away from Interstate 85, allowing tenants to serve multiple communities. Spartan Ridge was an especially attractive investment given the lack of warehouse space in this rapidly growing region and given its close proximity to corporate heavy-hitter users including Amazon, Adidas, Michelin, BMW, and Walmart.

Similar to with Star Metal, WealthCo invested in the development in 2018 and our recent exit earned gross IRR of 36.91% and a gross MOIC of 2.48x.

For both Star Metal Residences and Spartan Ridge Industrial, WealthCo partnered with ICM Asset Management, an international real estate investment firm with properties located all over North America.

“It’s really invaluable to be able to partner with firms like ICM that are specialists in their area,” Logan points out. “They have excellent insights into the North American real estate market. This has allowed them to identify properties that can deliver tremendous value to our clients. ICM has provided us excellent deal flow of high-quality real estate opportunities and have also secured great exits for both Star Metal Residences and Spartan Ridge Industrial.”

What is the Best Approach to Weathering Market Volatility?

“There is always going to be periods of volatility,” WealthCo Chief Investment Office Peter Lieu explains. “You can’t predict when they will happen which is why you need a diversified approach to investing. Getting exposure to different return streams - that’s how you buffer the volatility by not having all your eggs in one basket.”

Inflation uneasiness, rising energy prices, lingering COVID-19 concerns, global shipping delays – there are several factors that could have played into this recent bout of volatility.

“Companies are no different today than they were five days ago, but we’re still seeing the prices moving,” Lieu points out. “At WealthCo it all comes back to our investment approach. By being as widely diversified as we are, our portfolios should be less affected by these unpredictable swings than those who are simply holding a 60-40 portfolio.”

This volatility is at the core of why we started the WealthCo pools eight years ago. To build a well-diversified portfolio based on top-notch strategic partners.

“Building an institutional model is really important as far as moving away from the roller coaster,” WealthCo President David Udy explains. “We had a hypothesis that this model would make a lot of sense, and today we are living this. With over half a billion in investable capital, we can now access the best-in-class managers. The more people who participate, the better opportunities we’ll have access to. We’re not picking stocks, but rather we are investing in the strategic expertise of the best of the best management teams.”