Specifically, ALTS employs long-short strategies, hedge fund replication, managed futures, global infrastructure, merger & acquisitions, private equities and Treasury spread investments. The actively managed LALT holds a combination of equities, along with financial future contracts, forward currency contracts and other securities.

Additionally, investors can also select single styles as well, 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 capitalizes 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 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.

Potential investors should be aware that these types of investments are not meant as growth strategies to generate outsized returns in investment 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 alternative investments, visit our alternatives category.

Max Chen contributed to this article.