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Alternative Market Briefing

Other Voices: Is now the time to invest in alternatives?

Tuesday, December 05, 2017

Walter Davis, Alternatives Investment Strategist Invesco

I recently have been traveling around the country participating on a panel titled: "Alternatives: Time to Buy When Others Are Selling?" Spoiler alert - my answer to that question is a resounding "yes." There are two reasons why. First, looking back over the past 20 years (as shown in the chart 1 below), a portfolio holding a diversified set of alternatives would have generated higher returns with lower volatility and a lower maximum decline when compared to a standard 60% stock/40% bond portfolio.

Second, the most common mistake I see investors making with regard to alternatives is investing "after the fact." In other words, they add alternatives to portfolios following a period when equities struggled and alternatives performed well.

For example, many investors flocked to alternatives in the five years following the global financial crisis of 2008 (GFC), seeking to generate returns and reduce risk. However, the benefits of diversification may have been better realized if investors held alternatives before the 56% decline in the S&P 500 Index that occurred during the GFC.

Why haven't investors embraced alternatives?

We are in the midst of an unusual period in financial markets, featuring extremely accommodative monetary policy by the world's central banks, historically low interest rates, and a US stock market that is generati......................

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