Alternative Investments - Redefining Diversification
There is no doubt that market events of the past few years shook the faith of investors as a perfect storm of variables led to high volatility and underperformance.
So what should investors do? We suggest it is time to revisit what it means to be broadly diversified. 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.
Fortunately, financial innovation of the past few years has made alternatives even more widely accessible through investments such as mutual funds and exchange traded funds (ETFs). Please consult with your BlackRock sales professional to discuss BlackRock's alternative investment products and services that fit your clients' overall asset allocation plans and risk profiles.
What Are "Alternative Investments"?
Simply put, alternative investments are just that – alternatives to traditional stock and bond 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.
The Impact Over Time
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Source: BlackRock; Informa Investment Solutions. Equity is represented by the S&P 500 Index. Fixed Income is represented by the Barclays Capital Aggregate Bond Index. Enhanced portfolios include a 15% allocation to alternative assets, a 5% allocation to alternative equity strategies within the equity allocation and a 5% allocation to alternative fixed income strategies within the fixed income allocation. To fund these additional allocations, the equity allocation of each traditional portfolio is reduced by 15% and the fixed income allocation is reduced by 10%. The 15% allocation to alternative assets is represented by a 5% allocation to the Goldman Sachs Commodity Index, a 5% allocation to the Barclay Currency Traders Index and a 5% allocation to the NAREIT Equity Index. The 5% allocation to alternative equity strategies is represented by the Dow Jones/Credit Suisse Long Short Equity Index. The 5% allocation to alternative fixed income strategies is represented by the Dow Jones/Credit Suisse Fixed Income Arbitrage Index.
The information on this Web site is intended for U.S. residents only. The information provided does not constitute a solicitation of an offer to buy, or an offer to sell securities in any jurisdiction to any person to whom it is not lawful to make such an offer.
Utilizing alternative investments involves substantial risk and presents the opportunity for significant losses including in some cases, losses which exceed the principal amount invested. Alternative investments have experienced periods of extreme volatility and in general, are not suitable for all investors.
Please consider the investment objectives, risks, charges and expenses of each fund before investing. For mutual funds and registered alternatives funds, the fund's prospectus and, if available, the summary prospectus contain this and other information about the fund. You can obtain a prospectus and, if available a summary prospectus by calling 800-882-0052 or from your financial professional. To obtain information about privately offered funds, please contact your financial professional to obtain fund offering documents. The prospectus or offering documents should be read carefully before investing.
Hedge funds may not be suitable for all investors and often engage in speculative investment practices which increase investment risk; are highly illiquid; are not required to provide periodic prices or valuation; may not be subject to the same regulatory requirements as mutual funds; and often employ complex tax structures.
Utilizing private equity involves significant risks along with the opportunity for substantial losses.