Alternatives have the potential to diversify a portfolio made up of traditional assets.
Alternative investments represent a class of investment strategies outside of traditional long stock, long bond and cash holdings. There are numerous types of alternative investments, such as Private Equity, Hedge Funds, Real Estate, Commodities, and Managed Futures. The alternatives universe also includes more esoteric investments, such as rare coins, fine art and other collectibles. These non-traditional investments can play a particularly important role when traditional investments may experience significant volatility. They can be a powerful diversifier to those with traditional asset exposure.
At Campbell, we employ Managed Futures strategies, a type of alternative investment, to capture opportunities in the Equity, Fixed Income, Foreign Exchange and Commodity sectors. Below, we highlight some of the key features of a Managed Futures strategy:
- Liquidity: Many Managed Futures strategies trade the most liquid futures contracts in the world. As a result, most programs offer monthly, weekly or even daily liquidity. This reduces the need for Managed Futures funds to gate investors, even during periods of market stress.
- No directional bias: Managed Futures strategies can take long or short positions; thus, they have the potential to participate in both rising and falling markets.
- Can invest in both traditional (equity, fixed income) and non-traditional (foreign exchange, commodity) asset classes: Managed Futures strategies provide a vehicle to access the Commodity and Foreign Exchange markets, which are typically excluded from traditional investment portfolios.
- Low long-term correlation to stocks and bonds: Because Managed Futures strategies invest in a variety of underlying asset classes, both long and short, the long-term correlation to stocks and bonds is historically low.
- Diversification: A Managed Futures strategy may include a large number of underlying positions, with multiple markets traded in each of the four asset classes.