An investment strategy in Alternatives can offer low or even zero correlation to traditional markets and also provide a wide range of opportunities for investors. Simply put, investing in Alternatives can help provide better portfolio diversification for those who are willing to accept a potentially higher level of risk. During times of market downturn, this becomes especially attractive.

Here are 3 reasons how, by adding Alternative Assets to a portfolio, new opportunities can be generated:

1. Moving in a different direction

It is important to remember that there are different ways to interact with the markets beyond the traditional buying and selling of individual securities. For example, some Alternatives strategies implement techniques designed to generate profits when a stock price falls; others seek to offset the risk of unexpected price movements by hedging. hedging. These approaches can help cushion a portfolio when public markets are volatile.

2. Access to new opportunities

Alternatives expand the investment universe. When traditional investments seem unattractive and even in some cases frightening, Alternatives can offer additional opportunities by accessing niche markets beyond stocks, bonds and other liquid assets. This can include private markets and other investments such as Commodities, Real Estate and Infrastructure.

3. Understanding the potential benefits of illiquidity

During times of market stress, Alternatives strategies, which are not in daily liquidity vehicles, are less likely to be forced to sell quickly and at a lower price. On the other hand, mutual funds that are more liquid strategies may need to raise cash to meet redemption requests. At the same time, they may be positioned to take advantage of attractive buying opportunities at a discount due to stress and market dislocations. In addition, more illiquid assets often deliver higher fees to investors due to increased risks.

So, is it a good time to invest in Alternative Assets? While the current COVID-19 crisis has already done its part to shake markets and investor confidence, the uncertainty about what lies ahead can be equally overwhelming. Now more than ever, investors must consider all of their options when creating a portfolio for their future. This can mean a number of things: boosting diversification, investing in new or different markets, and taking advantage of unique investment opportunities, such as private credit, that are generated by current market dislocations.

Being prepared to weather a post-pandemic environment by thinking offensively can be one of the most valuable strategies of all.

Source: PIMCO