Liquid Alternatives: Panacea, or Just a Pain?

In the face of broad equity and fixed income market downturns, some investors may be tempted by the siren call of alternatives. These investments may include liquid alternatives, or “liquid alts,” a subset of fund and ETF investments that offer easier-to access exposure to alternative strategies while enticing investors with claims about higher potential returns and lower correlations to stocks and bonds.

Our data show that for more than a decade, liquid-alts funds in the US have underperformed broad indices tracking the equity and fixed income markets. And liquid alts may do little to diversify a portfolio composed of stocks and bonds, given that many hold a subset of these traditional asset classes.

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Robert J. Pyle, CFP®, CFA, AEP® founded Diversified Asset Management, Inc., in 1996 to provide personalized, comprehensive wealth management services to successful individuals, families, single women, and business owners. His specialty is addressing the complex financial needs of self-employed professionals, corporate executives, and small-business owners. Our disclosure can be found here. The views, opinion, information, and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting, or tax advice.