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The Case for Liquid Alternatives, Especially Now

The Case for Liquid Alternatives, Especially Now

While we have long advocated that alternatives should be a core allocation within any diversified investment portfolio, there are certain periods during an economic cycle in which it may be more advantageous to be hedged or have exposure to alternate sources of return than others. In this article, we will examine: 1) Why Envestnet I PMC believes that investors should own some liquid alternatives in their portfolios at all times, and 2) Why liquid alternatives make sense, especially in the current environment.

Why Liquid Alternatives
Liquid alternatives can do many things that traditional mutual funds can’t or don’t. For example, liquid alternatives can take short positions in stocks, making them less vulnerable to or even able to profit from a declining stock market. They can also go negative in bond duration, enabling them to profit from a rising interest rate environment. Additionally, liquid alts can participate in many investment strategies that have virtually no correlation to traditional investments, such as arbitrage and futures trading which makes them excellent diversifiers.

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Author’s disclaimer: The opinions expressed herein reflect our judgment as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities, or investment advice or a recommended course of action in any given situation. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. Information obtained from third party resources are believed to be reliable but not guaranteed. This paper may contain ‘forward-looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this paper is at the sole discretion of the reader.


Tim Clift
Chief Investment Strategist
Cynthia Crandall, CAIA
Vice President, Senior Investment Analyst
Frank Wei, CFA, CAIA
Vice President, Senior Investment Analyst

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