Broadly speaking, alternatives are investments in either assets other than the traditional types (stocks, bonds, and cash) or non-traditional strategies such as long/short or arbitrage. As a result of recent innovations, a wide variety of alternative investments are now available to nearly all investors. Because alternatives tend to behave differently than traditional stock and bond investments, adding them to a portfolio may provide broader diversification, reduce risk, and enhance returns.
We think a useful way to think about alternative investments is in terms of their "contents" and their "containers", where contents refer to the different underlying assets and strategies and containers are the packaging of each investment. Long/short strategies (the “contents”), for instance, can be available in both hedge funds and mutual funds (the “containers”). Ultimately, the contents determine how alternative investments may perform relative to traditional asset classes.
Explore some of the common myths associated with alternative investing and learn how alternatives can be an integral part of nearly every investor’s portfolio.
These definitions are geared toward helping investors more fully understand some of the key concepts associated with alternative investing.
Hedge funds can bring diversification to a portfolio that is hard to find elsewhere because of their flexibility to employ many different trading strategies and participate in non-traditional markets.
A focus on private companies offers the potential for enhanced diversification and returns, since many of the factors that drive public equity markets have lesser or no impact on private equity investments.