Alternative Investment Strategy for All

Posted on May 24th, 2016 at 9:53 AM
Alternative Investment Strategy for All

From the Desk of Jim Eccleston at Eccleston Law LLC:

Today’s market environment demands a system of asset allocation that reaches beyond traditional stock and bond portfolios. The new-age investor seeks alternative investments in order to mitigate risk, access new opportunities, and ensure that portfolios are non-correlated. New alternative investment strategies are becoming more and more accessible to investors of all sizes and levels of sophistication. While they historically have been the exclusive domain of large institutions, the introduction of liquid alternative strategies in mutual funds as well as exchange traded funds (ETFs), have made it easier for individuals to access the same strategies.

However, individual investors should have a solid grasp on the nature of alternative investment strategies before jumping in. The investments provide a different risk and return pattern over time. They achieve this goal through long and short securities or segmenting the markets in which they are situated. Stocks, bonds, commodities, currencies and other investment purchases make up the strategies. Their effectiveness relies on diversification. Because they are alternative in nature, they most often show low correlation to traditional investments. It is important to realize, too, that some alternatives perform more effectively in rising markets while other perform best in falling markets. Ensuring diversification in that respect is also crucially important.

Alternative strategies is a broad term that encompasses a large array of different vehicles. To make it easier, some group them among directional and non-correlating strategies. Directional strategies attempt to exploit market inefficiencies or price disparities and there effect is often to dampen portfolio volatility by being both long and short. Common directional strategies include: long/short, dedicated short bias, event-driven/distressed, event-driven/merger arbitrage, convertible arbitrage, global macro, fixed income arbitrage, and multi-strategy. In the other group, non-correlating strategies deliver low or negative correlation to traditional equity beta and have the effect of protecting portfolios in falling market conditions. Common non-correlating strategies include: market neutral, managed futures and currency hedging strategies. Below is a chart summarizing the strategies:

Alternative Investment Strategy for All

The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services. If you are in need of legal services, contact us to schedule a one-on-one consultation today.

Related Attorneys: James J. Eccleston

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