Mutual funds and ETFs have evolved to offer alternative investment opportunities to nearly every investor.
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.
For many years, alternative investments were only available to institutions, like pensions and endowments, and certain individual investors. Today, nearly every investor can access the differentiated return characteristics of alternatives through mutual funds or ETFs, also known as liquid alternatives.
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.
Liquid alternatives industry assets and the number of available funds have grown tremendously as these strategies have become increasingly available in mutual fund format.
Source: Morningstar as of December 31, 2016. 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).
Alternatives may help investors achieve a smoother investment experience over various market cycles, allowing for long-term outperformance.
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.
Over the Past 27 Years, Alternatives Outperformed at Least One Element of an Investor’s Core Portfolio 67% of the Time.
For Illustrative Purposes Only. Source: Bloomberg, GSAM. Underlying Indices: Core Equity – S&P 500 Index; Core Fixed Income – Barclays US Agg Bond Index; Alternatives – HFRIFOF Index. Please see additional disclosures. Time period shown is earliest common inception date (HFRI FoF inception 1/1/1990) through the most recent end of year. Past performance does not guarantee future results, which may vary.
Over the past 25 years, stocks have appreciated in value by a factor of ten, 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.
Source: GSAM, Bloomberg, HFR. As of December 31, 2016. 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, S&P 500 TR Index, and Barclays US Aggregate Bond Index, 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. Past performance does not guarantee future results, which may vary.
*Growth of $10,000: A graphical measurement of a portfolio's gross return that simulates the performance of an initial investment of $10,000 over the given time period. The example provided does not reflect the deduction of investment advisory fees which would reduce an investor's return. Please be advised that since this example is calculated gross of fees the compounding effect of an investment manager's fees are not taken into consideration and the deduction of such fees would have a significant impact on the returns the greater the time period and as such the value of the $10,000, if calculated on a net basis, would be significantly lower than shown in this example.
Diversification does not protect an investor from market risk and does not ensure a profit.
After years of strong returns for stocks and bonds, the future may not resemble the past.
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.
Source: GSAM, Bloomberg, HFR. As of December 31, 2016. 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 (S&P 500 TR Index) 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. Past performance does not guarantee future results, which may vary.
Insights and analysis designed to address questions and provide information to investors exploring alternative investments.
