- CFA Exams
- CFA Level I Exam
- Topic 8. Alternative Investments
- Learning Module 1. Alternative Investment Features, Methods, and Structures
- Subject 1. Types and Categories of Alternative Investments
CFA Practice Question
Many institutional investors allocate a portion of their portfolios to alternative investments because:
B. alternative investments offer higher returns.
C. alternative investments typically have low correlation with traditional investments.
A. alternative investments are less risky.
B. alternative investments offer higher returns.
C. alternative investments typically have low correlation with traditional investments.
Correct Answer: C
Due to low correlation with traditional financial investments, alternative investments are attractive to investors because of potential for diversification and higher returns when added to a portfolio of traditional investments.
User Contributed Comments 6
| User | Comment |
|---|---|
| Salim6 | Why not B pls ? |
| greenasha | B is talking about returns alone. C low correlation means attractive, potential for diversification result in higher returns. |
| GBolt93 | go look at average hedge fund returns vs. the market and you'll understand why not b |
| fabsan | These days GBolt93, there is no point to pay high fees for Hedge funds. Most of them are not even beating the market. |
| joeclark | Yea but theoretically, C is correct. |
| 923029 | B would infer that securities DONT offer higher returns. [Real Estate more profitable than early stage google?] Anyway, you can only pick one ... and C [low correlation] is definitely a correct answer. |