Alternative investments typically refer to hedge funds and managed futures. They represent an asset class in which the investment strategies, and risk and return characteristics, typically differ from those of more traditional investments such as stocks, bonds, and real estate. Investors and their advisors are increasingly embracing alternative investments as one of the most effective ways to strategically diversify, and improve the overall risk/return profile of their portfolios.

Alternative investments managers typically attempt to produce targeted returns or absolute performance, regardless of the underlying trends in the financial markets. They implement a wide array of trading strategies, from equity, fixed-income, CTA portfolios, or mathematical algorithms, however they each strive to capture market inefficiencies.

The strategies they utilize are not as easily accessible, especially for other regulated entities, such as mutual funds. To achieve this absolute return, alternative investments managers have the flexibility to incorporate different strategies and techniques that may include:

Short-selling: Sale of a security that you do not own, with the anticipation of purchasing it in the future, at a reduced cost.

Arbitrage: Simultaneous buying and selling of a financial instrument in different markets to profit from the difference between the prices

Hedging: Buying/selling a security to offset a potential loss on an investment.

Leverage: Borrowing money for investment purposes.