Alternative investments
One of a few challenges antagonising investment portfolios includes privation of diversification and insufficient sources of investment. Successful investment portfolios commonly have a historical characteristic of diversification. A diversified portfolio generally comprises of portfolio securities in alternative investments and assets which are or can be purchased in dissimilar parts of the global economy. When a portfolio is hedged, diversified sovereignty/geopolitical risk and other risk can be dodged.
According to the CFA Institute “alternative investments are investments with risk and return but are different from traditional investments like bonds and stocks” (2009). Modern alternative investments include Hedge funds, Managed Futures, Distressed securities, private equity commodities and real estate. These methods of investing are very modern and some do not have good sources of information for knowing about them in detail, but in this article I will try to explain how each investment method is practiced.
Real estate market- in short it is the acquisition of land and building which can then be sold and turned in to cash with profit, according to the CFA Institute “for centuries, individual investors have owned interests in real estate, primarily in the form of residential and agricultural properties” which are considered to be a store of value and wealth (2009). (CFA Institute, 2009) “Direct ownership includes investment in residences, business (commercial) real estate, and agricultural land”. Nonetheless to invest in the real estate market indirectly you need to invest in real estate investment, commingled real estate funds, buying equity of property companies and government infrastructure funds”.
Private equity/venture capital- This variety of investment is not accessible through brokers and stock exchanges, because most brokers trade on the behalf of those willing to buy publicly traded companies listed on stock exchanges. (CFA Institute, 2009) “Private equity is an ownership interest in a private (non-publicly-traded) company, companies whom have not applied for an IPO on a stock exchange”. According to the CFA Institution, “venture capital is the buyout of established companies via private equity funds known as buyout funds”(2009).
Commodities-(CFA Institute, 2009) “A commodity is a tangible asset that is typically relatively homogeneous in nature”. Investment in publicly traded equity of commodity-linked businesses has probably been the most common approach for both individual and institutional investors to obtain exposure, albeit indirectly, to commodities. Only investment in commodities via cash and derivatives markets constitutes alternative investing.
Managed futures- According to the CFA Institute “managed futures are private pooled investment vehicles that can invest in cash, spot, and derivative markets for the benefit of their investors and have the ability to use leverage in a wide variety of trading strategies”. Managed futures programs are often structured as limited partnerships open only to accredited investors, institutions and high-net-worth individuals.
Distressed securities- According to the CFA Institute “distressed securities are securities of companies that are in financial distress or near bankruptcy” (2009). Investment strategies using destressed securities exploit the fact that many investors are unable to hold below-investment-grade securities because of regulatory or investment policy restrictions. I have personally written a book on distressed securities myself. The title of the book is call “Bear market trading strategy: a definitive guide to trading distressed securities” which goes into much detail about the trading strategy and method of alternative investing. It is available on Amazon for purchase, you can also click the menu button on your top right, then click my books to check some of my book releases.
However you can also exploit investing in these alternative investments by opening a trading account which can let you hold positions in forex, commodities, stocks, cryptocurrencies and metals by clicking the banner below…..
References
CFA Institute.2009. Portfolio management study session 13-15 volume 5
