What's the Alternative?
This year has been a head-scratcher for most investors, given it has seen the worst period of returns for bonds while also
seeing an equity bear market. Alternative investments have been used by institutional investors for many years to help
diversify their portfolios and have proven helpful during recent market volatility. But what about the retail investor – what's
their alternative?
Defining Alternatives
Alternative Investments, as defined by Investopedia, are "a financial asset that does not fall into one of the conventional
investment categories," that is, equities, bonds, or cash. There are multiple alternative strategies that range in complexity,
from sophisticated investment strategies like hedge funds to investing in brand-new companies and ideas (venture capital)
or commodities, art, and antiques. The key characteristic is they perform differently from traditional assets.
While many strategies tend only to be available for institutional and high-net-worth investors, there is a growing number of
options for retail investors. Liquid alternative strategies are generally used to help manage risk in the portfolio, but how
they do it can vary depending on the strategy. Most strategies seek to help manage portfolio risk through diversification,
meaning they don't move in the same patterns as traditional assets. Some seek to hedge or modify returns, meaning they
limit the return pattern on the downside or upside.