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Diversifying Your Portfolio With Liquid Alternatives

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Diversifying Your Portfolio With Liquid Alternatives
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Alternatives: Exploring a Broader Opportunity Set

Exploring a Broader Opportunity Set

UCITs funds and ETFs have evolved to offer alternative investment opportunities to nearly every investor.

Alternatives Use Familiar Investments and Apply Differentiated Strategies


Alternative strategies generally use traditional investments, like stocks and bonds, and apply non-traditional investment approaches in an effort to provide differentiated returns. Alternative strategies can also access other asset classes, such as real estate or commodities.


Alternatives Are Now More Accessible


For many years, alternative investments were only available to institutions, and certain individual investors. Today, nearly every investor can access the differentiated return characteristics of alternatives through UCITs funds or ETFs, also known as liquid alternatives.

Alts-are-now-more-accessible

Source: GSAM. For illustrative purposes only. Views and opinions expressed are for informational purposes only and do not constitute a recommendation by GSAM to buy, sell, or hold any security. An investment in alternatives is not appropriate for all investors. Please see additional disclosures. Note that alternative investing is not suitable for all investors and liquid alternatives are not riskless investments, so investors can lose money.


Broader Adoption of Alternatives Is Underway


Liquid alternatives industry assets and the number of available funds have grown tremendously as these strategies have become increasingly available in UCITs funds format. 
 

Morningstar Alternatives Universe Assets Have Grown

LA_Charts_Growth-WhoUsesAlts

Source: Morningstar as of December 31, 2015. For illustrative purposes only. In an effort to distinguish funds by what they own, as well as by their prospectus objectives and styles, Morningstar developed the Morningstar Categories. While the prospectus objective identifies a fund's investment goals based on the wording in the fund prospectus, the Morningstar Category identifies funds based on their actual investment styles as measured by their underlying portfolio holdings (portfolio and other statistics over the past three years).

Taking an Alternate Path to Generate Returns

Alternatives may help investors achieve a smoother investment experience over various market cycles, allowing for long-term outperformance.

Alternatives Have Often Outperformed Either Stocks or Bonds


A more flexible investment approach allows alternative strategies to access distinct drivers of return. As a result, they may behave more independently than traditional asset classes. Alternatives have historically provided differentiated returns and helped to stabilize investment portfolios over time.

 

Since 1990, Alternatives Outperformed at Least One Element of an Investor’s Core Portfolio 81% of the Time.

Additional Returns

Past performance does not guarantee future results, which may vary.

Source: GSAM, Bloomberg, HFR. Starting point of January 1990 selected given longest common index since inception (HFRI FOF inception January 1990).  Alternatives , stocks, and bonds are represented by the HFRI Fund of Funds Index , Barclays Global Aggregate Bond Index (Hedged USD), and MSCI All-Country World (USD) Index, respectively. HFRI Fund of Funds invest with multiple managers through funds or managed accounts. The strategy designs a diversified portfolio of managers with the objective of significantly lowering the risk (volatility) of investing with an individual manager. The Fund of Funds manager has discretion in choosing which strategies to invest in for the portfolio. A manager may allocate funds to numerous managers within a single strategy, or with numerous managers in multiple strategies. The minimum investment in a Fund of Funds may be lower than an investment in an individual hedge fund or managed account. The investor has the advantage of diversification among managers and styles with significantly less capital than investing with separate managers. The HFRI Fund of Funds Index is not included in the HFRI Fund Weighted Composite Index. Source: HFR Database, © HFR, Inc. 2015


Alternatives Have Provided Additional Stability to Investors


Over the past 25 years, stocks have appreciated in value, though the ascent has been rocky at times. Bonds have had more modest but stable appreciation. By diversifying sources of return and helping to provide stability in market downturns, alternatives may encourage investors to stay the course over various market cycles.


Alternatives Have Historically Delivered More Stable Performance than Stocks and Have Outperformed Bonds

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Past performance does not guarantee future results, which may vary.

Source: GSAM, Bloomberg, HFR. As of December 2015. Starting point of January 1990 selected given longest common index since inception (HFRI FOF inception January 1990). Alternatives , equities, and bonds are represented by the HFRI Fund of Funds Index, MSCI All-Country World Index (USD), and Global Aggregate Bond Index (Hedged USD), respectively. HFRI and related indices are trademarks and service marks of Hedge Fund Research, Inc. ("HFR") which has no affiliation with GSAM. Information regarding HFR indices was obtained from HFR’s website and other public sources and is provided for informational purposes only. HFR does not endorse or approve any of the statements made herein. HFRI FOF index shown as representative of absolute return strategies. 

Diversification does not protect an investor from market risk and does not ensure a profit.

 


  

Solving a Return Conundrum

After years of strong returns for stocks and bonds, the future may not resemble the past.

We Believe Now Is the Time to Diversify Your Portfolio with Alternatives


With stock prices and bond yields near record levels, we believe it is unlikely for current trends to continue. Alternatives have historically delivered attractive returns relative to stocks and bonds during challenging market environments.

 

After Years of Gains in Traditional Asset Classes, We Believe Now Is a Particularly Compelling Time to Invest in Alternatives

LA_Charts_Additional_static_chart

Past performance does not guarantee future results, which may vary.

Source: GSAM, Bloomberg, HFR. As of December 2015. Challenges faced by traditional asset classes are defined as equity bear markets and rising rate periods. Rising rate periods are longest five since 1990. Bear markets are defined as periods in which equities realized at least a 15% pullback. Starting point of January 1990 selected given longest common index since inception (HFRI FOF inception January 1990). Data reflects average outperformance of alternatives (HFRI Fund of Funds Index) versus bonds (Barclays US Aggregate Bond Index) in five longest rising rate periods since 1990 and of alternatives (HFRI Fund of Fund Index) versus stocks (MSCI All-Country World Index (USD)) during equity bear markets. HFRI and related indices are trademarks and service marks of Hedge Fund Research, Inc. ("HFR") which has no affiliation with GSAM. Information regarding HFR indices was obtained from HFR’s website and other public sources and is provided for informational purposes only. HFR does not endorse or approve any of the statements made herein. HFRI FOF index shown as representative of absolute return strategies.

Learn More About Liquid Alternatives


Conversation Starters


Insights and analysis designed to address questions and provide information to investors exploring alternative investments.