Why should investors consider alternatives?

Explaining the basics of alternative strategies

Time to read: 2 min

Alternative investments (alts) were first embraced by institutions, and some people still view them as a complex solution for complex needs. However, a growing number of alternative strategies are now available via mutual funds. This allows alts to be used by everyday investors to help meet three of their most common investment objectives: building wealth, preserving wealth and providing income.

Why use alternatives?

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Can alternative investments help in uncertain markets?

Explaining the basics of alternative strategies

Time to read: 2 min

For investors, it’s a whole new ballgame in 2018. Markets have become much more volatile and reactive to economic and political events, leaving investors increasingly concerned about what the future will bring for stocks and bonds. This has led to significant interest in investments that may be able to help cushion portfolios during times of market weakness. In my experience, alternative investments, due to their unique performance characteristics, can serve this purpose.

Given this recent increased interest

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Why manager selection is critical for alternative investors

The difference between the top and bottom performers can be significant

Time to read: 4 min

The recent (and long-awaited) return of market volatility has put alternatives back on the radar screen. But not only must investors familiarize themselves with the different types of alternatives that are available to them, they must also assess the skill level of the managers running these funds. Manager selection is a question that all investors face, of course, but it’s especially critical for investors in alternatives because these managers have greater freedom in their investment strategies. This freedom leads to a wide dispersion between the top-performing and below-average alt managers, and that dispersion is typically greater than what is found in traditional equity investments.

Comparing top and bottom managers

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Multi-alternative funds: Alts for one and one for alts

How multi-alternative funds may eliminate choice overload for investors

Time to read: 2 min

In my most recent blog, I described how choosing the appropriate alternative strategy (Real estate? Market neutral? Senior loans?) could become the biggest challenge for new investors in alternatives. This is one of the most common questions I receive here at Invesco, along with how to identify the best fund managers and how to select specific alt funds for a portfolio. This three-part dilemma speaks to the challenge of navigating the multi-faceted world of alternative investments.

I have written previously about the potential benefits that alternatives may deliver, be it boosting returns, reducing risk, providing diversification or delivering uniquely timed returns. However, it is much harder to select the specific investment that may best fulfill a given set of individual objectives. There are three reasons why:

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Which alternative strategy is right for you?

Connecting your investment objectives to specific alternative investments

Time to read: 4 min

In my previous blog, I made the case for why now might be the ideal time to invest in alternatives. Specifically, I suggested alternatives now make sense for three reasons:

  1. I don’t believe that the current high return/low risk environment for equities will last forever. Ultimately, I believe stocks will revert toward long-term historical averages (e.g., lower returns and higher risk).
  2. Over the past 20 years, a portfolio holding a diversified set of alternatives (48% stock/32% bond/20% alternatives) has tended to outperform a traditional 60% stock/40% bond portfolio by generating higher returns with lower volatility and lower maximum decline.1 See chart 1 in my previous blog — Is now the time to invest in alternatives?
  3. Alternatives have room to rise. One of the most common mistakes investors make in allocating to alternatives is investing “after the fact” — after the group has significantly increased in price. That hasn’t happened yet. Those who invest today could potentially benefit if the equity bull market ends and alternatives begin to outperform.

Given this backdrop, some investors are likely considering an investment in alternatives in 2018. The next step is very important — which alternatives are most appropriate considering individual return expectations, risk objectives and general market outlook?

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