Alternative Investments Yielding Strong Diversification Outcomes

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Democratizing of Alts Continues Globally. 

Alternative investments increasingly are in the spotlight for market observers who see their strong outcomes in today’s volatile market environment.  These investments include, for example, managed futures, commodities, hedge funds, and private equity.  The world of alternative investments is continuing its transition from a relatively exclusive investment asset cateogry for institutions and high net work invetors, to a key investment option accessible to individual investors. 

What to Consider 

One of the key differences between Alts and traditional stocks and bonds is that Alts can allow for greater diversification benefits, while also offering exposures far beyond traditional stock and bond options.  Real estate investment trusts and venture capital funds are among some of the other alternative investment options.  Alternative investments are appealing because not only are they becoming more accessible to investors, but they are minimally correlated to stocks and bonds.  Alternative investments sometimes are implemented to effect a hedge against market volatility, while providing risk mitigation and downside protection.  Especially given the economic uncertainty looming from the COVID-19 pandemic and the upcoming U.S. presidential election, investors are looking to alternative investments to smooth out their portfolio outcomes in the months ahead. 

History and Outlook

Historically, alternative investments have fallen less when compared to the broader market following a recessionary period.  For instance, in 2009, the S&P Total Return Index declined 11 percent while the Barclay BTOP 50 Index — which tracks managed futures funds — fell by only 1.8 percent.  This same phenomenon has occurred during a broad range of market drawdown periods and, therefore, institutional and individual investors alike are putting Alternative Investments back in focus to best position their portfolios for the balance of 2020 and beyond.

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