Stocks appear to be waffling a bit lower in the early going this morning with most of the focus on the happenings in Washington. And with traders waiting for the earnings parade to begin, this appears to be a good time to continue our exploration into the “alts†– I.E. alternative investing strategies.
To be sure, the alt space has been hyped as the next big thing in the investment business. The idea is to utilize both alternative asset classes as well as alternative approaches to traditional asset classes in one’s portfolio. The goal is to produce returns that are purported to be uncorrelated to the stock and bond markets. Sounds good, right?
I’ve often heard the category referred to as the “last frontier of investing. But to be fair, the idea of putting some “diversifiers†into one’s portfolios is actually as old as the hills.
In the old days, investors would carve out a small portion of their portfolios and include some gold. Then as time passed, commodities were included in the mix. And then REITs became a popular alternative – so popular in fact that the category now has its own S&P 500 sector.
More recently though, the alt space has expanded into untraditional areas such as L/S Equity, Managed Futures, Options, Arbitrage, etc.
So, for starters, I wanted to explore how what I call the traditional alts compared to the standard asset classes – i.e. the stock and bond markets. I wondered why investors had strayed from the old-school alts and over time have embraced all the sophisticated new-age alt strategies.
The Old-School Alts
I first looked at how an equally weighted combination of the “traditional alts†would have fared over a period of time and compared them to the traditional stock and bond markets, as well as the good ‘ol 60/40.
In the table below, I use the Vanguard REIT ETF (VNQ) as a proxy for REITS, the Powershares DB Commodity Index ETF (DBC) as a proxy for commodities, and the SPDR Gold ETF (GLD) as a proxy for the gold market.
