Accessing alternative asset classes with ETFs

In today’s volatile market environment, you may want to consider looking outside of the typical asset classes like equities and bonds. In a massive market correction, the correlation of global stocks and bonds rise, causing even globally diversified portfolios to fall tremendously. In response, we’ve seen a rise in interest in alternative asset classes, such as hedge funds, private equity, real estate and commodities, are gaining popularity, providing a stronger diversification and improving the portfolio’s risk-return profile.

PwC Strategy research expects that by 2020, global assets in alternative investments will grow to US$18.1 trillion. Assets in new categories like liquid alternatives (including exchange-traded alternative funds) are growing as quickly as 15% per year. Today’s focus is on 2 alternative asset classes that are gaining traction in the current volatile environment: hedge funds and private equity.

Why access alternatives through ETFs?

  • Cost-effective: expense ratio is much cheaper than average hedge fund or PE fund
  • Diversification: further diversification across various hedge fund strategies/managers and PE funds
  • Liquidity: intra-day trading of ETF is available on the exchange, compared to typical lock-up periods and minimum notice periods in hedge funds and PE funds
  • Accessibility: no minimum investment requirements, unlike a hedge fund or PE fund

Investors looking for broad exposure to hedge funds may be interested in db x-trackers db Hedge Fund Index ETF USD Hedged <XHFD>.

<XHFD> provides exposure to 5 underlying hedge fund strategies: Systematic Macro, Global Macro, Equity Hedge, Event Driven, and Credit & Convertible Index. It systematically rebalances strategies every quarter, based on industry asset weights.

Investors looking to access private equity as an asset class may consider db x-trackers db LPX MM Private Equity UCITS ETF <XPLE>.

<XPLE> provides exposure to the 25 largest Listed Private Equity companies, and is diversified across regions, investments and financing styles. An LPE is a PE firm that invests in other unlisted businesses. Here listing on a stock exchange does not influence its core business. LPEs often trade at discounts to NAV too, providing attractive valuations.