Should alternative investments become normal?
01 October 2018
TBI’s Distribution Manager Jonathan Whittaker looks at 3 good reasons why investors should consider alternative investments.
1. CAN DIVERSIFY YOUR PORTFOLIO
The events of 2008 and 2009 suggest that conventional diversification strategies are not working as well as they used to. As “alternatives” are non-traditional, they do not always move in the same direction of public markets. For example, hedge funds can invest across a number of markets through varied instruments.
2. CAN DELIVER HIGHER RETURNS THAN TRADITIONAL STOCKS AND BONDS.
Alternative investments can hedge against market risk and can outperform traditional counters, having fared better during the financial credit crisis. It would be incorrect to say that alternative investments are immune to market volatility but its low correlation to the market can protect or buffer one’s portfolio.
3. CAN IMPROVE RISK RETURN PROFILES
Traditional stocks and bonds are largely correlated to currency instability and stock market volatility. In a bear market, some alternative investments will lose money. However, in the same bear market all traditional equity funds will lose money. The aim of alternative investments is seldom about having short-term returns but rather generating long-term, consistent returns. In this way, alternative investments can reduce volatility and provide some protection when markets are struggling.
“According to PwC, global alternative investments under management sits at about $ 8 trillion but is expected to increase to $ 13.6 trillion by 2020. This means that alternative investments have grown twice as fast as traditional investments since 2005. Alternative investments are becoming ‘normal’ and can play a very important part in a portfolio when it comes to improving overall returns, managing risk and having a well-considered diversification strategy.”