30 DAYS 30 WAYS: Day 1 of Investment Insights - The Rapid Rise of Alts Most alternative investment assets are held by institutional investors or by accredited, high-net-worth individuals and, according to Preqin, now total $6 trillion. Alternative investments include hedge funds, managed futures, real estate, commodities and derivatives contracts. But alternative investments aren’t just for institutions any longer. According to Morningstar alternatives investment analyst Josh Charney, $38.7 billion flowed into alternative investment mutual funds and ETFs over the year ended April 30, 2014. That’s roughly a 36% increase over the prior year and more than a 100% increase over the past two years. Alternative fund assets now comprise about $150 billion. Still, it’s a drop in the bucket compared to the total of all long-term funds of $11.3 trillion. The appeal of alternative investments is that they will zig (rise) when the stock market zags (plunges), thus providing stability to our clients’ portfolios. Charney attributes the rapid growth to investors looking for more diversification and for lower volatility compared to stocks. Morningstar categorizes alternatives in three basic buckets: Non-traditional asset classes (such as commodities and currencies). Non-traditional strategies (such as shorting or hedging). Illiquid assets (private equity, private debt). Morningstar notes that once an alternative investment becomes mainstream (such as REITs), it may no longer be considered an alternative. To be considered a good alternative investment, Morningstar says a category should produce positive, risk-adjusted returns over a reasonable time frame, and exhibit low correlations to traditional investments. Over the course of this series, Ill examine the role of alternatives in clients’ portfolios. Looking at past performance as well as future expected returns, I’ll offer some opinions as to which ones to consider and which to steer clear of.
Posted on: Sun, 01 Jun 2014 18:29:36 +0000
Trending Topics
Recently Viewed Topics
© 2015