Alternative Investments: A Comparative Guide for the Modern Portfolio
For investors seeking broader diversification beyond traditional stocks and bonds, alternative investments offer an expanded toolkit. These strategies often behave differently than public markets and may provide uncorrelated returns, downside protection, or enhanced yield—though they also come with unique risks, structures, and costs.
In this guide, we compare key alternative asset classes across six dimensions:
- Strategy Overview
- Investment Structures
- Common Fees
- Correlation with Public Markets
- Historical Performance
- Private Equity
Strategy:
Invests in non-public companies through buyouts, growth equity, or venture capital. Focuses on operational improvements, value creation, and eventual exit via IPO or sale.
Structures:
- General Partnerships (PE funds)
- Private Placement Limited Partnerships
- Some interval funds, BDCs, and feeder funds (accessible via mutual fund/ETF format for retail investors)
Fees:
- Traditional: “2 and 20” (2% management fee + 20% of profits)
- Feeder/interval fund versions: ~1.5–2.5% annually with performance fees
Correlation with Public Markets:
- Moderate (0.4–0.8 depending on strategy and time frame)
Historical Performance:
- Top-quartile funds have historically delivered 12%–15%+ net annualized returns
- Median closer to 8%–10%
- Private Debt
Strategy:
Lending to companies outside traditional banking systems. Includes direct lending, mezzanine financing, and distressed debt.
Structures:
- Private credit funds (limited partnerships)
- BDCs (public and non-traded)
- Interval funds and private REIT-style wrappers
Fees:
- 1%–2% management fee, with possible performance incentives (~10% carry)
- Higher in direct or niche lending strategies
Correlation with Public Markets:
- Low to moderate (0.2–0.5)
Historical Performance:
- 6%–10%+ annual returns, depending on credit quality and strategy
- Managed Futures
Strategy:
Trend-following across global asset classes (equities, bonds, commodities, currencies) using futures contracts. Seeks to profit in up or down markets.
Structures:
- Mutual funds
- ETFs
- Hedge funds
Fees:
- Mutual funds: ~0.75%–2%
- Hedge funds: 2% management + 20% incentive is common
Correlation with Public Markets:
- Very low to negative (-0.1 to 0.2)
Historical Performance:
- Variable; strong in crises (e.g., 2008, 2022)
- Long-term: performance varies widely amongst funds and performance tracking is difficult because the funds that report performance publicly tend to be the strong performers and closed or failed funds are often not reported
Expected Future Returns:
- Market Neutral Strategies
Strategy:
Hold long and short positions to offset market risk. Profits come from security selection, not market direction.
Structures:
- Hedge funds
- Liquid alt mutual funds
- ETFs (limited exposure)
Fees:
- Hedge fund: 2 and 20
- Mutual funds: ~1%–2%
Correlation with Public Markets:
- Varies widely amongst funds (-0.65–0.9)
Historical Performance:
- -2%–7% net annually
- Often used for capital preservation
- Cryptocurrency
Strategy:
Digital assets like Bitcoin, Ethereum, and smart contract platforms. Speculative store of value and decentralized finance exposure.
Structures:
- ETFs (Bitcoin spot and futures)
- Crypto exchanges and wallets
- Private funds and trusts (e.g., Grayscale)
- Self-custody via cold storage
Fees:
- ETFs: 0.2%–1%
- Trusts/funds: 1.5%–2.5%
- Trading costs and custody fees may apply
Correlation with Public Markets:
- Varies: High during market stress; low at other times (~0.2–0.6)
Historical Performance:
- Extremely volatile; Bitcoin annualized return ~80% since inception
- But with frequent 50%–70% drawdowns
- Precious Metals
Strategy:
Invest in gold, silver, and other metals as inflation hedges and stores of value. Also used in industry (silver, platinum).
Structures:
- ETFs (e.g., GLD, SLV)
- Mining stocks or mutual funds
- Bullion or allocated storage
Fees:
- ETFs: 0.2%–0.6%
- Storage fees for physical metals
- Mutual funds: ~1%
Correlation with Public Markets:
- Low to moderate (0.1–0.3)
Historical Performance:
- Gold: price appreciation of 10%+ over the past 30 years
- Silver more volatile
- Commodities
Strategy:
Exposure to raw materials like oil, natural gas, wheat, and copper through futures contracts or related equities.
Structures:
- ETFs (e.g., DBC, USO)
- Futures
- Commodity-linked notes
- Mutual funds
Fees:
- ETFs: 0.5%–1%
- Active strategies: 1%–2% or more
Correlation with Public Markets:
- Low (0.1–0.5), but can spike in inflationary periods
Historical Performance:
- Very cyclical
- ~3%–5% annualized over long term
- Multi-Strategy Funds
Strategy:
Blend of long/short equity, fixed income arbitrage, event-driven, long-short, managed futures, and macro strategies. Goal: deliver absolute returns in all market environments.
Structures:
- Hedge funds
- Liquid alts (mutual funds/ETFs)
Fees:
- Hedge funds: 2 and 20
- Liquid funds: vary widely 0.2%–2% annually
Correlation with Public Markets:
- Low to moderate (0.2–0.5)
Historical Performance:
- 4%–8% long-term average
Final Thoughts
Alternative investments can enhance a portfolio by offering:
- Diversification
- Non-correlated return streams
- Access to unique sources of alpha
But they also require:
- Careful due diligence
- Understanding of liquidity constraints
- Willingness to tolerate complexity and higher fees
Need Help Deciding What Fits Your Portfolio?
At 49th Parallel Wealth Management, we specialize in helping investors integrate traditional and alternative assets—across Canada and the U.S.—using evidence-based strategies and fiduciary guidance.
We offer hourly consultations and ongoing portfolio management—including for employer retirement plans via platforms like Pontera.
📞 Contact us today to book your free initial consultation.
