What Are Alternative Investments?
Some investors still think of alternative investments as an exclusive, rather narrowly defined class of investments. It is important to understand that, especially now, this is far from the truth. Due to a number of innovations, alternatives today come in a variety of packages, encompass a wide range of assets and strategies and are available to nearly all investors. Because of their tendency to behave differently than traditional stock and bond investments (i.e., non-correlation), adding alternatives to a portfolio can offer scope for broader diversification and the potential to reduce risk while also enhancing returns.
We think a useful way to think about alternative investments is in terms of their "contents" and their "containers", where contents are the different underlying assets and strategies and containers refer to the packaging of each investment (Learn more about "contents" and "containers"). Long/short strategies, for instance, can be available in both hedge funds and mutual funds. It is ultimately the contents (as a product of their inherent risk factors) that determine how investments are expected to perform relative to traditional asset classes.
Explore some of the common myths associated with alternative investing and how alternatives can be an integral part of nearly every investor’s portfolio.
Hedge funds can bring diversification to a portfolio that is hard to find elsewhere because of their flexibility to employ many different trading strategies and participate in non-traditional markets.
A focus on private companies offers the potential for enhanced diversification and returns, since many of the factors that drive public equity markets have lesser or no impact on private equity investments.
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Incorporating alternative investments into a portfolio presents the opportunity for significant losses including in some cases, losses which exceed the principal amount invested. Also, some alternative investments have experienced periods of extreme volatility and in general, are not suitable for all investors.
Investing in alternative strategies such as a long/short strategy, presents the opportunity for losses which exceed the principal amount invested. There is also the possibility that long and short strategies could both fail, thereby increasing volatility and potential losses.
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.
Investors should consider the investment objectives, risks, charges and expenses of any fund carefully before investing. The funds' prospectuses and, if available, the summary prospectuses contain this and other information about the funds, and are available, along with information on other BlackRock funds by calling 800-882-0052. The prospectus and, if available, the summary prospectuses should be read carefully before investing.
Prepared by BlackRock Investments, LLC, member FINRA.
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