Alternative Investments

Alternative Investments Characteristics and Issues

Characteristics

7 Common Characteristics of Alternative Investments – The common characteristics are: diversity (there are many kinds of alternative investments), non-normal and non-linear returns (especially skewness of returns), low liquidity, difficult valuation, limited availability of good benchmarks, legal restrictions and limited availability of alternative investments to some types of investors (often only qualified investors have access), and the absolute necessity and complexity (and high cost) of due diligence.

Non-Normal Return Distribution of Alternative Investments – Non-normal returns represent one of the key characteristics of alternative investments. This page provides a short introduction on (the obviously very complex) issues of alternative investments and hedge fund styles and their implications to return distributions and risks.

Benefits

4 Benefits of Alternative Investments as Part of Your Portfolio – The main benefits are: diversification potential, inflation hedge, new exposures and opportunities, and higher returns. Of course, given the diversity of alternative investments, not all of these benefits apply always and to all types of investments.

Issues

Alternative Investments: Liquidity, Valuation Issues, and Alternative Benchmarks – Of course, alternative investments don’t just have benefits. This page discusses the most common weaknesses and problems.

Alternative Investments Accessibility: Are Hedge Funds Only for the Rich? – Limited accessibility is another characteristic feature of alternative investments. It has two main reasons: risk management and legal restrictions. This page briefly discusses them and their recent developments.

Hedge Fund Styles

Hedge Fund Trading Styles Overview – This is the basic introduction to hedge fund styles. It discusses the why’s, how’s, and who’s of hedge fund style classifications and it also provides a short introduction of the 4 big hedge fund style groups (equity market directional, relative value, corporate restructuring, and macro).

Equity Market Directional Hedge Funds – The most common hedge fund trading style (with the highest number of funds and highest assets under management) is directional equity trading. This page provides an introduction to its characteristics, risks, and numerous sub-styles – from fundamental stock picking to high frequency trading and computer models.

Convergence Trading Hedge Funds – Convergence trading sounds like a sophisticated term, but it is actually quite common trading style – or rather a whole diverse group of trading styles. In general, it means trading one security against another one (buy one and sell the other), with the objective of profiting from the relative changes in price rather than absolute price directions. Such trades are often called spreads. This page provides an introduction to the (also very large and diverse) group of hedge funds applying these trading styles.