Types of Liquid Alternatives

Liquid alternative mutual funds employ a wide range of strategies with distinct performance characteristics.

Liquid alternative mutual funds employ a wide range of strategies with distinct performance characteristics.

Alternative Strategies

Liquid alternative strategies come in three major types:

Hedged

Intended Purpose

Capture growth potential while managing risk through the use of short sales to offset market exposure

Examples

Focused Expertise

Intended Purpose

Capitalize on potential mispricing of securities that may arise from specific corporate situations

Examples

Trading

Intended Purpose

Capture opportunities in the commodity, currency and interest rate markets

Examples

Alternative Asset Classes

Real Estate

Intended Purpose

Generate income and capital appreciation through rental or financing income associated with commercial real estate

Examples

Real Estate Investment Trusts (REITs)

Commodities

Intended Purpose

Hedge inflation risks through physical commodities including energy, agriculture or precious metals

Examples

Energy Master Limited Partnerships (MLPs)

Multi-Strategy Alternative Solutions

Individual liquid alternative strategies can be combined to achieve solutions to specific investor objectives. Goals-based, multi-strategy alternative solutions may include:

Alternative Income Solutions

Intended Purpose

Provide income and mitigate the impact of rising rates

Employs

  • Combination of alternative asset classes (real estate, commodities), alternative strategies (long/short credit, distressed), certain traditional asset classes
  • Explicit focus on income

Alternative Equity Solutions

Intended Purpose

Provide exposure to growth while protecting against equity volatility

Employs

  • Equity-like alternative strategies (long/short equity, event driven)
  • Equity diversifying alternative strategies (global macro, trading, managed futures)

Real Return Solutions

Intended Purpose

Protect against inflation

Employs

Combination of alternative asset classes (real estate, commodities) and inflation-sensitive traditional asset classes (TIPS)

Total Alternative Solutions

Intended Purpose

Provide a diversified allocation to alternatives in one investment

Employs

  • Combination of multiple alternative strategies
  • Strategic and tactical allocations across strategy types

Diversification does not assure a profit nor does it protect against loss of principal.

This information is for educational purposes only and is not intended as investment advice.