However the act of creating shares to trade in the stock market increases the likelihood that this supposed uncorrelated business will see the correlation of its shares align somewhat with the broad equity market. Shares in any company are subject to the same greed and fear that moves the price of any stock; these types of somewhat alternative stocks can’t be permanently immune from the stock market because they are a part of the stock market.
Every so often ideas like investing in wine, art or stamps become popular to read about because…the returns are steadier and uncorrelated. If you bought a case of wine and stored it, or a $50,000 painting and hung it in your home or do whatever people do with stamps I bet none would look anything like the stock market but this effect would be diluted if the same things were purchased through some sort of fund that priced on a daily basis in the public markets.
They are still valid for the right type of investor but perhaps the path here for people is that where alternatives are concerned they should be more tactical than with an index fund or dividend stock. Not all of these alternatives are low beta. The farm stocks tend to go from being crushed to skyrocketing while some of the airports and toll roads tend to be a little steadier.
There are funds that target various slices of alternative investing (here I am lumping things like farms and toll roads in with funds that target various alternative strategies) and this space is going to grow and some of them will be successful at meeting the steady return low correlation objective.
This article was written by AdvisorShares ETF Strategist Roger Nusbaum.