Time to mix things up

Have you considered alternative investments? Alternative assets have at times been used as a ‘catch all’ bucket for any investment strategy that isn’t a buy and hold equity or bond portfolio.

I classify investments within alternative assets, based on the ability to generate a return lowly correlated to traditional equities, bonds, listed property or cash. Alternative assets also signify strategies that are often strongly influenced by skill rather than the direction of markets.

I believe selecting the appropriate alternative strategy and fund manager can add considerable value to a portfolio. Combining specific alternative assets together, you can enhance the risk adjusted returns of your portfolio.

When you have two assets that are not perfectly correlated with each other, there is potential to combine the two in a portfolio and maintain the same level of return but reduce overall risk.

Investors are grappling with either accepting lower returns going forward, or trying to identify unique sources of returns. Alternative assets can provide that. Market neutral, global macro and commodity trading advisers in particular do not require positive equity or bond markets to generate returns.The returns from these strategies are driven by the skill of the manager. This provides a diversified source of return.

An allocation to alternative assets is not driven by a desire to increase risk, it is quite the opposite. The recommendation to allocate to alternative assets comes from a desire to seek a diversified range of investment opportunities, to reduce your overall risk and generate more consistent and superior risk adjusted returns.