Financial advisors and investors may be getting too caught up in the market rally, forgoing alternative assets and exchange traded funds that could help diversify a portfolio and diminish volatility during a market correction.
According to Wealth Management, fewer financial advisors are recommending alternatives to clients this year than last year. Meanwhile, 24% of advisors said they are unlikely to recommend alternatives to clients, compared to 17% last year.
Alternative assets, as the name suggests, are comprised of investment options other than stocks and bonds, including precious metals, real estate, commodities, private equity investments and collectibles, writes Andrew Osterland for Investopedia.
Investors can access these various asset classes and other alternative asset or hedge-fund-esque strategies through an expanding group of ETFs. For instance, investors can take a look at two recently launched alts strategies, the ProShares Morningstar Alternatives Solution ETF (NYSEArca: ALTS) and PowerShares Multi-Strategy Alternative Portfolio (NasdaqGM: LALT). [Alternative ETFs for Conservative Investors]
ALTS includes exposure to long-short strategies, hedge fund replication, managed futures, global infrastructure, merger & acquisitions, private equities and Treasury spread. Additionally, the actively managed LALT holds a combination of equities, along with financial future contracts, forward currency contracts and other securities. [Alternative ETF Options to Diversify an Investment Portfolio]
These types of alternative ETF strategies diversify a portfolio since their returns are not closely correlated to stocks or bonds. Consequently, the alternative investments could help offset losses if equities or fixed-income assets begin to fall.