Seizing the Alternative ETF Opportunity
After a multi-year run in the stock markets, advisors and investors can diversify their position with alternative investments and exchange traded funds that help diminish the risk of a significant correction in stocks.
On the upcoming ETF Trends Virtual Summit on January 20, 2016, financial advisors will be able to hear from industry experts on alternative or “alt” ETFs and their place in a diversified asset allocation plan as a way to diminish portfolio risk.
These alternative investments help investors access strategies that have lower correlation to traditional equities and fixed-income assets. Consequently, these alts strategies may zig as traditional assets zag.
“With one eye on the recovery and one eye on the monster that may surface from under their beds, investors have gotten a lot more interested in alternative investments,” Money Morning Chief Investment Strategist Keith Fitz-Gerald said. “They’ve always been there as an asset class so that’s not unexpected. But what’s new is the understanding of the role that they can play in turbulent times.”
Specifically, alts investments can provide a hedge against swings in larger markets, offer portfolio diversification benefits and provide a way to play the market when stocks are overvalued. With markets as high as they are now, more investors are beginning to take a look into alts strategies.
For instance, institutional investors and hedge funds are expected to significantly raise their allocation to alternative investment strategies ahead. According to PwC, the alternative investment industry is expected to expand fivefold to at least $13.6 trillion in the next half decade, compared to its current $2.5 trillion. [Alternative Investments, ETFs Are Increasingly Popular]
With exchange traded funds, any investor can access broad alts strategies as well. For instance, the IQ Hedge Multi-Strategy ETF (NYSEArca: QAI ) provides a diversified mix of alternative strategies, including multiple hedge fund investment styles, such as long/short equity, global macro, market neutral, event-driven, fixed income arbitrage and emerging markets. [Hedge Rate Risk with a Multi-Strategy ETF]
The ProShares Morningstar Alternatives Solution ETF (ALTS) also employs long-short strategies, hedge fund replication, managed futures, global infrastructure, merger & acquisitions, private equities and Treasury spread investments.
The SPDR SSgA Multi-Asset Real Return ETF (RLY) includes exposure to natural resource producers, commodities, real estate investment trusts and Treasury inflation protected securities.
The actively managed PowerShares Multi-Strategy Alternative Portfolio (LALT) holds a combination of equities, along with financial future contracts, forward currency contracts and other securities.
Potential investors should be aware that these types of investments are not meant as growth strategies to generate outsized returns in investment portfolios. In reality, these strategies are doing exactly what they were made for, diminishing volatility. Consequently, in bullish market conditions, the strategies may underperform, but if the markets turn, alts can shine.
Financial advisors who are interested in learning more about alternative strategies can attend the ETF Trends Virtual Summit, an online event, on January 20, 2016.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
