Alternative investments cover a wide range of investment opportunities. The major categories include private equity, hedge funds, infrastructure, emerging markets and distressed debt.
An investment is considered alternative if it:
• has a relatively limited investment history
• is relatively uncommon in investment portfolios
• has clearly differentiated features from any traditional asset class such as Australian equities
• requires specialist skills to manage
The benefits of exposure to alternative investments include:
• Additional Diversification - alternative investments have different features to traditional asset classes such as Australian equities, producing returns with a low correlation to conventional shares, property and fixed interest assets. If well chosen, the addition of alternative assets may increase the level of total portfolio return with little additional risk.
• Potential for Higher Returns - the degree of uncertainty surrounding returns for alternative investments leads investors to demand a higher return than would normally be required from a comparable investment with a longer track record.
• Long Term Horizon - many alternative assets are illiquid and therefore require investors to take a long term view. Investors can earn superior returns by investing in illiquid alternative assets over the long term.
• Asset Protection - in the example of hedge funds, in difficult market conditions, managers will use a number of trading strategies including short selling and derivatives with the aim of producing positive returns regardless of the direction of the market.
Investment managers of alternative investments require a specialist skill set to manage, research and monitor the investments. Beulah undertakes significant research into the experience and reputation of the investment managers when selecting any alternative assets for inclusion in the Model Portfolios.
Alternative investments are generally considered growth assets. Beulah believes they can be a worthy addition to a growth-oriented investment portfolio, offering increased returns, lower portfolio risk and asset protection in difficult markets. Beulah will typically gain exposure to alternative investments through managed funds and Exchange Traded Funds (ETF’s).