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Introduction to Investing in Alternatives with Exchange-Traded Funds

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Alternative investments and strategies can reduce risk and enhance returns. See how ETFs can help you invest in alternatives.

What you will learn

  • Commodity and Currency Exchange-Traded Funds
  • Bear Market Exchange-Traded Funds
  • Long-Short and Other Alternatives in Exchange-Traded Funds

What do you know?

Introduction to Investing in Alternatives with Exchange-Traded Funds

Alternative investments can help provide diversification to a traditional stock and bond portfolio. These "alternatives" can also help reduce risk and improve return at any given level of risk. Alternative investments accomplish this through the use of asset classes that move differently from stocks and bonds, such as commodities or currencies, or through the use of shorting or hedging. Just as alternatives are used to diversify a traditional portfolio, diversification among alternatives is also prudent.

Many investors think that "alternative investments" are hedge funds, but alternative investments have expanded into regulated investment vehicles with daily liquidity, such as exchange-traded funds and mutual funds. Besides daily liquidity, alternative ETFs also provide daily position transparency, unlike mutual funds. Alternative ETFs generally fall into commodity, currency, bear market, and long-short categories, but some don't fall neatly into any bucket.