Additionally, investors can also select single styles, such as Index IQ Merger Arbitrage ETF (NYSEArca: MNA), ProShares RAFI Long/Short ETF (NYSEArca: RALS) and WisdomTree Managed Futures Strategy Fund (NYSEArca: WDTI). MNA would capitalize on arbitrage opportunities through mergers and acquisitions activities. RALS tries to generate an absolute return through taking long equities positions while simultaneously hedging through short exposure. Additionally, WDTI tries to provide uncorrelated to broad market equity and fixed-income returns through a combination of long and short positions in U.S. treasury futures, currency futures, non-deliverable currency forwards, commodity futures, commodity swaps, U.S. government and money market securities.

Due to the multitude of investment strategies available, advisors and clients should take the time to understand the products before adding them into a diversified portfolio. Advisors wouldn’t necessarily overweight alternative strategies in their investment portfolios, but they would add a small portion into these products, capitalizing on factors like diversification, low correlation, enhanced risk-adjusted profile, absolute returns, poor bond market outlook, investments that clients wouldn’t find themselves and enhanced yield. [Alternatives ETF in the Early Stages of Growth]

Potential investors, though, should be aware that these types of investments are not meant as growth strategies to generate outsized returns in their portfolios. In reality, these strategies are doing exactly what they were made for, diminishing volatility. Consequently, in bullish market conditions, the strategies may underperform, but if the markets turn, alts can shine.

For more information on ETFs, visit our ETF 101 category.

Max Chen contributed to this article.

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