There’s no doubt some Canadian investors are cynical about the rise in popularity of alternative investments over the past few years. And really, who can blame them?…
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Hedge-fund strategies and non-traditional asset classes such as private equity and infrastructure are repeatedly touted for their significant diversification benefits and returns that are uncorrelated to stocks and bonds, but they also usually come with big price tags and, more often than not, are limited to institutional and/or accredited, high-net-worth investors.
But for those who still have faith, a new wave of cheaper and more accessible products known as liquid alternatives is starting to take hold. Already well established in the United States, “liquid alts” are slowing gaining steam in Canada and the timing couldn’t be better now that market volatility is back on the rise.
“Alternatives are absolutely critical to the future of investment management,” said Som Seif, president of Purpose Investments Inc., one of the few exchange-traded-fund providers in the country offering liquid alt funds. “People have to recognize that we are not going to build portfolios the same way with half in bonds and half in equities and get the same outcome we’ve had in the past. If we do it that way, we’re going to have a very lost generation of investors.”
By most definitions, alternative investments are simply anything different from traditional long-only offerings. Liquid alts, by extension, are composed of mutual funds or ETFs that primarily use alternative investment strategies such as long/short equities and managed futures in traditional asset classes such as stocks and bonds, as well as non-traditional ones like real estate, commodities, currencies and collectibles.
“Another way of thinking about this description is that liquid alts are the democratic investment vehicles that hedge funds can’t deliver to the masses, and they are made available for both the average retail investing public — subject to initial minimum investment balances — and institutional investors,” said Howard Tai, an analyst at AITE Group LLC, an independent research firm based in Boston, in a recent report.
Source: ETFWorld.com
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