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Alternative Investment Classes And Their Role In Investment Portfolios

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Question :

Describe "Alternative Investment Classes and their Role in Investment Portfolios” with examples, a selection of seven alternative investments which are generally available on capital and other markets, the expected / realized returns and risks of each, and to consider how they are used in constructing and hedging investment portfolios.

 

Answer :

Investment Strategies & Options

Investment is considered as one of the most wonderful method to enhance the wealth of the people around the world. Now the main issue is the selection of the class of investments that the people should invest in that entirely depends on the type of strategies the investors make depending on the quantum of risk they are likely to take. These risks are being diversified as soon as the investors go for alternative investments. These assets are in the class of real assets that are hard and tangible and include various types of other assets as well.

There are various alternative classes of assets as listed below for the investors to build their portfolio and in return develop their wealth by balancing the risks and returns of the portfolio.

 

1. Private Equity- Private Equity is one of the emerging sectors around the world as the players are investing in this sector through the long term investments in the private sectors. This class of investment is an illiquid asset class that offers long term diversification away from the public markets. The only risk that prevails is the low liquidity and restrictions linked with these investments but growth and returns are attractive here.(DeFeo, 2012)

2. Hedge Funds- These are also an investment strategy where the risk is low as the portfolio of investment is being managed by the hedge fund managers. Some of the problems that these funds face are that they are only suitable for high end investors and accompany a lower return due to the lesser degree of risk involved.
 
3. Managed Futures- These futures are those part of the business that are being managed by the company  as an underlying asset base that pulls up the chain for the working of system. The futures are tax inefficient and a bit uncomfortable with people new in the securities market.  
 
4. Currencies- The currencies are also a mode of investment for the investors but it requires in depth analysis of the currency and the most important risk that is faced by the government regulations that is being governed by the economical and political norms along the world.
 
 

5. COMMODITIES- These I a source similar than to the other market products but here the buyers have the amount to lot sizes then there are beneficially  for them and these commodity melds the people that would lead to higher and maximum profits in the long run.,

6. Real Estate- It is one of the areas that is different from security but available in the huge investment projects where are buyer and seller both are caning profits though the arrangement at might rates which expected high return. It takes lot or manage such investments as it is linked with money so had to be undertaken very nicely as there is huge amount of risk with low chances of high profits. 

Hence the investment classes are helpful in maintaining the wealth of the shareholders and thus help in understanding the concepts of investment strategies in a better way.  

 

Bibliography

daveramsey. (2013). Want to know how Dave invests his money? Find out here! daveramsey.com , 1-1.

DeFeo, J. (2012). The Street. The Street , 1-1.

Diedrich, S. (2014). 'Alternative' or 'Hedged' Mutual Funds: What Are They, How Do They Work, and Should You Invest? Forbes , 1-3.

Dumon, M. (n.d.). What is Private Equity. Investopedia , 1-2.

Idzorek, T. (2007). Private Equity and Strategic Asset Allocation. ibbotson , 7-9.

Kulkarni, P. (2010). Investment Strategies. The Economic Times , 1-1.

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