Include Alternative Investments in Your Portfolio
During periods of poor performance of traditional asset classes, investors may be
driven to look for ways to balance their investment portfolios in an attempt to
improve performance in a variety of market conditions.
We believe that incorporating alternative investments, such as private funds and managed
futures, into your portfolio can help you achieve this balance.
Diversify with Alternative Investments
Alternative investments, including private funds and managed futures, can be characterized
at least in part by their ability to utilize a wide array of trading techniques,
often (but not always) including selling securities "short" and employing leverage.
For these reasons and others, private funds and managed futures have historically
proven to have low correlation with the broader market of stocks and bonds.
In the case of private funds, the SEC has stated that private funds have been used to
diversify investment portfolios based on their historic low correlation with more
traditional equity and fixed income investments.¹ In the case of managed futures,
these investments exhibit similar historic correlation properties. In fact, many
managed futures programs have historically often been negatively correlated with
equity indices in months when equity returns have been negative, and positively
correlated when equity returns are positive.² Dr. John Lintner of Harvard University
has concluded that "[t]he combined portfolios of stocks after including judicious
investments in managed futures accounts show substantially less risk, at every possible
level of expected return, than portfolios of stocks (or stocks and bonds) alone."³
Correlations are subject to change. There is no guarantee that the addition of alternative
investments to a portfolio will increase returns or avoid losses.
Styles and Strategies of Private Funds and Managed Futures
Even sophisticated investors who understand the potential benefits of diversifying
with alternative investments can feel overwhelmed when choosing which specific investments
to incorporate into their portfolio. Within the broad category of alternative investments,
there is a wide array of different styles and strategies, and an even wider array
of managers. Identifying the full range of available choices is one challenge. In
addition, every alternative investment needs to be evaluated individually as to
its trading styles, history, opportunities and risks. Proper review through rigorous
qualitative and quantitative investigation is critical.
Learn More about Alternative
Investment Styles and Strategies
Frequently Asked Questions
We have compiled three FAQs to help you learn more about the different types of
alternative investments available.
Frequently Asked Questions
about Alternative Investments
Frequently Asked Questions about Hedge
Funds
Frequently Asked Questions about
Managed Futures
1. "Implications of the Growth of Hedge Funds," the Securities and Exchange Commission,
2003.
2. Burak Cerrahoglu and Dulari Pancholi, "The Benefits of Managed Futures," Center
for International Securities and Derivatives Markets, March 2003.
3. Dr. John Lintner, "The Potential Role of Managed Futures Accounts in Portfolios
of Stocks and Bonds," 1983.