Depending on who you talk with, alternative investments include, but are not limited to, different types of hedge fund and private equity strategies. Even commodities, which we allocate small portions of our Accountable Portfolios into, are considered alternative in some circles. All of these investments are often marketed as having greater return potential than traditional stocks or bonds or low correlations with other asset classes.
In recent years, “liquid alternatives” have increased in popularity considerably. This sub-category of alternatives consists of mutual funds that may start from the same building blocks as the global stock and bond market but then select, weight, and even short securities in an attempt to deliver positive returns that differ from the stock and bond markets. Are they able to do what they set out to do?