The Anna Maria Island Sun Newspaper

Vol. 16 No. 27 - May 4, 2016


Anna Maria Island Sun News Story

Alternative investments – worth a look

Investment Corner

The term alternative investment has been used a lot in the last five to six years, but I find it almost too ambiguous to really communicate the concept that alternatives are intended for. In its broadest sense, alternative investments are vehicles other than the traditional big three of investing – stocks, bonds and cash. But, that leaves quite a lot to be included in this one descriptive term.

So, for example, an investment in a real estate investment trust would be considered an alternative investment, even though this vehicle has been known to act much like the stock market at times. Commodities are another asset class that would fall into the alternative category, as well as the limitless world of investment strategies put together to try to create investment nirvana – reasonable returns with low risk.

Unfortunately, most of the funds created to accomplish this goal have succeeded on the risk control portion, but not done very well at actually generating returns of any significance. Certainly a few have succeeded, and selecting the right fund manager is the key to success in alternatives, even more so than selecting a stock or bond manager.

One of the drivers behind the alternative investing push is that some of the most successful pension funds and university endowments have way more money in alternative investments than they do in traditional investment. The most successful of the last 20 years is the Yale University Endowment, which presently has well over 50 percent of the portfolio investing in vehicles other than stocks and bonds.

Endowments have different needs and priorities than individual investors though. Primarily the need for greater liquidity and a shorter investment time horizon than a fund which will still be around 100 years from now. It is unreasonable for most individual investors to put the majority of their capital in illiquid or less-liquid investments, but a smaller portion, say 10 to 20 percent, may be OK.

Fortunately, there are some alternative investments that are more liquid in nature, meaning they can be bought or sold daily. There also are some in the middle ground, where the ability to sell your position exists once per quarter. Almost all of the larger mutual fund firms have some alternative strategies that are easy to access, but as mentioned above, manager selection is key. The dispersion of manager performance between the best and the worst is much wider in the realm of alternative strategies than in the world of more traditional stock and bond strategies.

Another important distinction when selecting alternative investments is the priority of growth over income, or vice versa. Most alternative strategies tend to be good for one, but not as good at the other, although some may accomplish both goals.

Having the help of an adviser is important when constructing a portfolio to include alternative investments to make sure the chosen strategies complement one another, rather than mimic each other, and to also align them with the more mainstream positions, which are already in your portfolio.

You don't need to change your entire investment plan to include alternatives, but it is probably a good time to review your personal investment objectives and your portfolio to see if they are aligned considering the current investment environment.

Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing. Visit


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