Stocks, bonds and cash are the most commonly known traditional investments. Alternative investments may encompass any non-traditional investments of financial assets such as hedge funds, private equity, venture capital, real estate, commodities, and other assets.
Some of the distinctive characteristics of alternative investments compared with traditional investments:
There are two basic investment strategies.
Passive managers "buy-and-hold." There are very limited ongoing buying and selling actions. Their portfolios are expected to generate Beta return.
Most alternative investment managers use active, alpha-seeking strategies. The assumption is inefficiencies exist that can be exploited to earn positive return after adjusting for beta risk. These active strategies include absolute return, market segmentation and concentrated portfolios.
Sharpe ratios and many downside risk measures are commonly used to measure risk and return of alternative investments.
Despite unique risks and considerations, alternative investments can be useful tools to improve the risk-return characteristics of an investment portfolio. They can increase diversification and reduce volatility given low correlations to more traditional investments.
Many alternative investments use a partnership structure.
|ankurwa10: Tip to remember. A for Alpha so Active seeks Alpha, and Passive seeks Beta.|
|nikmouwen: ankurwa10 Thank you, good tip!|
|zackrivers: great tip|
|sals1230: thanks for that tip!|
|dbedford: Alpha males are active and Beta males are passive.|
|nmech1984: dbedford, any strategy on bi males?|