For example, the IQ Hedge Multi-Strategy ETF (NYSEArca: QAI), the largest alternative strategy ETF on the market, provides a diversified mix of alternative strategies, including multiple hedge fund investment styles, such as long/short equity, global macro, market neutral, event-driven, fixed income arbitrage and emerging markets.

Related: Consider Alternative ETF Strategies to Hedge Market Risks

QAI is also expected to reduce its expense ratio to 0.76% from its current level of 0.98% on November 1.

The alternative ETF is up 4.9% year-to-date, while the S&P 500 has gained 16.4%. Nevertheless, 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.

During periods of market selling in traditional assets, these types of liquid alternative strategies can experience lower drawdowns or even positive returns, which may help buoy an investment portfolio during troubled times.

For more information on liquid alts, visit our alternatives category.