What if you could make an investment that was in no way tied to what the stock market will do in the next 10 years? Such an investment could do well in the face of extended declines in the stock market, and do well if there is a market recovery. The investment could also perform poorly in all three cases, but such an investment is, by definition, lowly correlated with the stock market. This ability to achieve returns independent of stock market performance is the defining characteristic of alternative investments.
Alternative Investing Benefits
- Returns independent of Stock Market Performance
- Reduction of risk via portfolio diversification
- Have performed well historically during market crises (Oct. 1987, Asian crisis 1998, 9/11 tragedy, current credit crisis 2007-2008)
- Low correlation to traditional investments such as stocks, real-estate, and bonds
The allure of alternative investments lies in their ability to provide absolute returns regardless of conditions such as a strong economy, low inflation, or a bullish stock market. And indeed, one of the key benefits of alternative investments is this ability to profit in virtually any economic environment.View alternative investment performance.
Not surprisingly, the amount of assets allocated to alternative investments such as managed futures (Attain's specialty) has increased dramatically over the past several years as investors search for alternatives to the stock and bond markets.
Source: Barclay Hedge
Commodities: a TRUE alternative investment
While many so called alternative investments (like hedge funds) are really no more than alternate strategies within an existing asset class, managed futures provide diversification into a true alternative asset class through exposure to commodity markets.
Venture capital, private equity, and many hedge funds are actually an extension of the equity class (stocks), not an alternate asset class altogether.
In contrast, Attain brings exposure to a truly different asset class in commodities, which provide economic value through being consumed or transformed - not on the basis of future cash flows like stocks and bonds.
Attain does utilize futures on stock indices and financial instruments such as bonds and currencies, which do not fall into an alternate asset class, but remains diversified by using a multi-dimensional approach comprised of lowly correlated strategies across different time frames and logics.
Independent Research on Alternative Investing
A study published by the Chicago Mercantile Exchange concluded that portfolios with as much as 20% of assets in managed futures "enhances portfolio diversity and therefore promotes greater independence from general market moves". View the report here: http://cmegroup.com/education/files/ManagedFutures.pdf
The graph below, "Optimum Portfolio Mix (01/1987 — 02/2008)" provided in the same report, shows that a traditional portfolio (50% stocks, 50% bonds, and 0% managed futures) presents an investor with the greatest risk (in terms of volatility of returns) and lowest returns. However, a portfolio containing alternative investment management comprising 40% stocks, 40% bonds, and 20% managed futures offers an investor the greatest returns and least amount of risk.
According to Dr. Harry M. Markowitz, the Nobel prize-winning economist and father of modern portfolio theory, portfolios with decreased volatility and increased performance can be created by diversifying among asset categories with low to negative correlation, such as stocks and commodities. Subscribers to this theory believe an investment portfolio containing alternative investments with low to negative correlation stands to perform better, with lower overall risk.
To learn more about alternative investment management, email or call us at 800.311.1145 to speak with an alternative investing specialist. We're here to help and happy to answer any questions you may have about alternative investing and Attain's services.
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