Alternative investments is an umbrella term encompassing a wide variety of investments and strategies that can offer enhanced return opportunities, diversification and/or some measure of inflation protection to investors. We believe that the key to successfully capturing these benefits is dependent upon conducting thorough due diligence on each potential alternative investment opportunity, and then building a well-diversified alternatives portfolio.
Investors considering alternatives for the first time should focus on the main benefit that each alternative can bring to a portfolio.
No two investors are perfectly alike, and investors will all have distinct objectives for their investments. However, if an allocation to alternative investments is appropriate for investors, their objectives — which can include (but are not limited to) return enhancement, diversification and inflation protection — may be more effectively achieved by allocating some portion of their investment portfolio to various alternative investments.
Prudent sizing of allocations to individual alternative investments is also essential to mitigate the potential for performance to be derailed by idiosyncratic risks.
We break down the asset classes and their associated advantages in this paper and address the following areas:
- An overview of alternative investments
- Utilizing alternative investments: Return enhancement and diversification
- Implementation considerations