V.16:3 (152-155): Alternative Investments For Volatile Times by Gary Spitz

Alternative Investments For Volatile Times by Gary Spitz

The stock market isn't the only asset class available to qualified investors; for example, there are managed futures and hedge funds. Here's an overview of the hedge fund industry, as well as recent performance tables.

Is the stock market due for a more substantial correction? Will volatility increase? Is this volatility setting the market up for a substantial move, down or up? Regardless of the outcome, wise investors should be looking to diversify their portfolios into noncorrelated investments, because portfolios of noncorrelated assets should potentially show a smoother long-term growth curve. This strategy is based on the expectation that positive returns in a portfolio of noncorrelated assets should at least offset and preferably outperform the negative returns. Investors need and should demand noncorrelated investments inside and outside traditional asset classes or investment categories.

There are a number of asset classes that are not correlated to the stock market, but institutions and accredited investors are investing record amounts into two: managed futures and hedge funds. While these categories make up a wide array of investments, collectively, they are referred to as alternative investments. Either of these investments have the potential to do well during a variety of market conditions, such as when the stock and bond markets are underperforming their historical returns. Thus, investors should consider either of these alternative asset classes for their portfolios.