Alternative investments can be used to enhance a portfolio in a wide variety of ways. For instance, commodities can be used as a hedge against inflation, and private equity might make sense for investors who can wait to realize returns from its long-term performance potential. While alternative investments have different characteristics from each other, in general they rely less on markets and more on investment selection for returns, which can help you achieve greater diversification in your portfolio.
Investors today have broader access to alternative investment options than ever before. Alternative mutual funds and registered alternative funds offer greater transparency and easier access to capital compared to traditional unregistered private funds. However, we believe traditional alternative vehicles still offer investors the widest range of investment opportunities and greatest return potential.
Choose particular alternatives based on how you want each to contribute to overall portfolio performance. For instance, are you looking to:
Mitigate the effects of stock market volatility?
Add investments that have lower correlation to traditional stock and bond markets?
Access capital now or keep it invested in exchange for higher return potential?
Hedge your portfolio against inflation or rising interest rates?
The choice of investments available to you is growing, and with it, the potential to find greater diversification.
All markets have inefficiencies — learn how identifying and taking advantage of these can benefit you.
Is the era of ultra-loose monetary policy over? A long/short strategy is one tactic you should consider to help reduce the effects of rising rates.
An investor can reduce how much stock market fluctuations affect their portfolio by investing in funds with lower net market exposures, such as market neutral or long/short funds.
Hedge funds enhance diversification by having a broad opportunity set, less dependence on market direction and ability to take advantage of market inefficiencies.