Alternative investment strategies that were once the domain of institutional and high-net-worth investors are going mainstream.
Indeed, fund companies are responding to demand for downside protection in the wake of the 2008 market collapse with a new lineup of liquid alternative products.
Such funds, which are sold as both mutual funds and exchange-traded funds, seek to stabilize portfolios by delivering differentiated returns. Meaning, the funds are designed to zig while the traditional stock and bond markets zag.
The more than 400 liquid alternatives that exist, many of which are fewer than five years old, invest in nontraditional assets, such as global real estate, leveraged loans, start-up companies and unlisted securities.
They also utilize complex trading strategies commonly associated with unregistered hedge funds and private equity funds, including long/short equity, managed futures, market neutral, multi-alternative, multicurrency and nontraditional bonds.