Global economic growth, already at the lowest level since the 2008 financial crisis, is estimated to slow down further in 2019. The Middle East is particularly affected by global growth trends, as domestic financial markets are governed by external factors, especially oil prices, but also international tourism and trade.
As UAE stock markets have been on a rise since the beginning of the year, investors are looking to avoid over-exposure to traditional asset classes. While they are seeking diversification opportunities to put their money to work, a new asset class has appeared on the radar: blockchain assets.
Their non-correlation to traditional asset classes provides investors with a vehicle to diversify their portfolios. Ahmed Jacob, Dubai based Managing Partner and CTO of INVAO Group, said: “In the future, blockchain assets will play an increasingly important role in global financial markets.”
Blockchain assets are exchange-listed and non-correlated to other asset classes. A diversified investment portfolio includes stocks, bonds, cash, and alternative assets. Popular alternative investments in the UAE include real estate, private equity, and commodities such as crude oil or gold.
Jacob explains that compared to these asset classes, blockchain assets have three key advantages: “They are exchange-listed, non-correlated to other asset classes, and they have outperformed every other asset class over the past five years.”
As blockchain assets are listed on digital exchanges, investors can determine their current market value in real-time. While that is also possible with assets like gold or crude oil, it is significantly more complex with real estate or private equity assets.
Jacob continues, “Non-correlation means if the price of another asset class moves, blockchain assets remain unaffected. This provides effective downside protection. In case equity or bond markets turn bearish, blockchain assets will lower the negative effect on the overall portfolio return. “
Blockchain assets also have a more attractive risk-return profile than other asset classes. The graph below shows the Sharpe Ratios – a widely used measurement for an asset’s risk-adjusted return – of popular assets over the past five years: Bitcoin outperformed the entire market.
Blockchain assets will likely become increasingly popular in the UAE’s investment landscape
The rising popularity of blockchain assets in the UAE was a hot topic at the Alternative Investment Summit (AIM) in Dubai. During the summit, INVAO Group presented its latest investment product, the IVO Blockchain Diversified Bond (ISIN: LI0471823018) which replicates the returns of a diversified blockchain asset portfolio.
“As blockchain is a relatively new technology and markets are volatile, investors need to continuously keep an eye on their investments,” says Jacob. “But most investors neither have the time nor the technical expertise. That’s why we launched an actively managed investment product that allows investors to participate in the returns of blockchain markets in a more convenient and secure way.”
INVAO’s success speaks for itself: Over the first six months of 2019, the IVO bond has seen returns of more than 108 percent and has outperformed its benchmark index, the CCi30, as well as Bitcoin and all popular traditional indices.
Jacob says, “Blockchain assets will rise in popularity over the next three years and establish themselves as a new asset class in the UAE’s financial investment landscape. They provide an excellent opportunity for UAE investors to put their cash reserves to work while managing their risk and avoiding over-exposure to traditional asset classes.”