As part of a thoughtfully constructed portfolio, alternative investments have the potential to provide above average returns and could even reduce risk because they are less likely to move in tandem with stocks and bonds.
Simply put, alternative investments are just that – alternatives to traditional stock, bond and cash investments based on the fact that they tend to behave differently in a portfolio. Many think of alternative investments as a single asset class or strategy, when in fact this is not the case. Alternative investments such as long/short strategies, commodities, hedge funds, private equity and real estate – to name just a few – can provide access to sophisticated investment opportunities that cross asset classes, broaden diversification and offer the potential for enhanced returns.
Historically, alternative investments such as hedge funds have been unavailable to many investors due to high minimum investment hurdles and high net worth requirements. Even those who met the requirements were faced with fund liquidity restrictions, special tax procedures and sometimes opaque investment reporting. Recently, a growing universe of high caliber managers who previously operated alternative investment strategies in the private hedge fund space, have created similar strategies in liquid mutual fund vehicles. This has created opportunities for HCCM to offer these solutions to a wider range of our clients. Through the use of “Liquid Alternatives,” we construct a more broad-based asset allocation model which typically offers liquidity, low investment minimums, no investor qualification standards and the familiarity and ease of mutual fund structures.
We believe that investors should incorporate liquid alternative strategies in conjunction with traditional stock and bond investments as part of their asset allocation program. Many alternative strategies have offered superior risk-adjusted returns versus traditional long only strategies over the last several decades, and therefore, we feel that going forward, they should play an important role in a well-diversified portfolio.