Alternative Investments:
Contents vs. containers


Alternative investments share a number of characteristics and objectives. However, it’s important to recognize that there is wide latitude within the category of “alternatives.”

 


A useful distinction

One useful way to compare alternatives is to consider their "contents" and "containers."

Contents can be either the assets themselves or the investment strategy employed. Currency and real estate, for example, are truly alternative assets in that they intrinsically have little direct relation to the performance of traditional (i.e., long-only) stock or bond investments. In comparison, alternative strategies often trade in the same markets as traditional investments but take a unique approach — using a long/short strategy, for instance. Either way, the contents determine how individual investments might be expected to perform relative to traditional investments.

Containers define the vehicles in which investments might be found, such as hedge funds, private equity funds and mutual funds, all of which are structured differently for a variety of management, liquidity, legal and regulatory reasons. Hedge funds, for example, are categorized together because their goal is to mitigate (“hedge out") certain risks inherent in other asset classes, not because their contents are all the same.

Accessing alternative investments: Contents versus containers

Accessing Alternative Investments: Contents Vs. Containers

Thinking in terms of contents and containers can help you diversify your portfolio not only by investment type, but by investment vehicle. Different contents can help you mitigate risk in your portfolio and gain exposure to additional markets. Meanwhile, different containers can help you address distinct needs (e.g., liquidity, transparency, ease of access, etc.).

What to consider

Alternatives come in a variety of packages, span a range of strategies and are available to nearly all investors. The information below can help you weigh some important factors.

Alternative Investments important factors table