Alternative Investments
The main alternative investments that are available are commercial property funds, absolute return funds, funds of hedge funds, and structured products.
Commercial property did very badly in the downturn of 2008-09, as the effects of the recession were felt. In normal times, property is a good diversifier, often moving in a different direction from equities. That is what happened between 2000 and 2003, when equities were going down, but property was going up in value. This time, property and equities went down together, and now they are recovering together.
Absolute return funds aim to provide a positive return in all market conditions. Funds like Standard Life Global Absolute Return Strategies Fund aim to provide longer term equity returns at about a third of the volatility. They provide useful diversification for a portfolio.
Hedge funds are not generally available to the retail investor, but funds of hedge funds are available. Most of them are closed ended funds (investment trusts), for example Dexion Absolute and Thames River Hedge+.
Structured products are generally based on a fixed term deposit and derivatives to provide exposure to a particular index, for example the FTSE100 index of leading UK shares. They often provide capital protection. The return can be greater than the return on the underlying index. The problem can be that the money is tied up until the maturity date, but there are versions that provide the possibility of getting out sooner, and there are fully tradeable versions that can be bought and sold like ordinary shares. An example of these are the Accelerated Trackers provided by RBS.