Multiple Ways To Invest In Alternatives with a Single Active ETF

Many ETFs offering exposure to alternative investments take a very opinionated approach. For example, many commodity futures ETFs focus on predicting commodity cycles. But investors looking for long-only exposure to various alternative investments have few good options.

The newly launched LALT invests in a broad portfolio of alternative asset-focused ETFs and trusts, providing exposure to every corner of the alternative assets market. When evaluating potential investments, portfolio managers focus on total return and factors like correlation to traditional asset classes.

As of January 31, the fund held a portfolio of eight alternative asset ETFs and trusts, including:
 

• First Trust Alternative Absolute Return Strategy ETF – 21.44%
• First Trust Managed Futures Strategy Fund – 21.22%
• First Trust Merger Arbitrage ETF – 11.88%
• First Trust Long/Short Equity ETF – 10.24%
• First Trust TCW Unconstrained Plus Bond ETF – 10.13%
• First Trust Low Duration Opportunities ETF – 10.09%
• First Trust Global Tactical Commodity Strategy Fund – 10.03%
• Investco CurrencyShares Swiss Franc Trust – 5.03%

These holdings broadly provide exposure to 31% commodities, 22% hedged equity, 21% managed futures, 20% opportunistic fixed income and 5% currencies. As a result, investors can easily access an entire portfolio of alternative investments by investing in a single ETF.

The fund charges a management fee of just 0.20%, but acquired fund fees and expenses create a total annual expense of 1.23%.

Investors seeking exposure to a broad portfolio of alternative assets have several other options, too.

For instance, the actively managed SPDR SSGA Multi-Asset Real Return ETF (RLY) offers a broad portfolio of inflation-protected securities, commodities and publicly traded companies in the natural resources of commodities businesses. The fund managers select these investments using a quantitative model while factoring in fundamental viewpoints.

Another option is the IQ Hedge Multi-Strategy Tracker ETF (QAI). While RLY focuses on real assets, QAI tries to replicate the risk-adjusted return characteristics of hedge funds by investing in long/short equity, global macro, market neutral, event-driven, fixed-income arbitrage and emerging market opportunities.

When evaluating different opportunities, investors should carefully consider each fund’s risk and return characteristics and ensure they meet their portfolio’s requirements.

Alternative investments provide an excellent way to diversify risk and potentially improve risk-adjusted returns. Rather than taking a narrow focus, the newly launched First Trust Multi-Strategy Alternatives ETF (LALT) offers broad exposure to alternative assets in a single security.

Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.