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Alternative Investments

Traditional asset classes for investment purposes are stocks, bonds, and cash. Alternative asset classes lie outside of these categories and often are categorized as long/short equity, commodities, absolute return, private equity, real estate, and merger arbitrage as examples.

Although institutions such as OMERS, Ontario Teachers, and the Yale Endowment Fund increasingly use alternative strategies most individual investors do not.

As investment advisors we believe adding a component of alternative investments adds another level of diversification, and is an excellent complement and enhancement to a traditional portfolio.

"2015 is an interesting example for considering alternative investments. The S&P/TSX was -11.01%, S&P 500 was -.7%, and the MSCI World was -2.7%. Although numerous traditional strategies were positive, our alternative strategies enjoyed a positive year as well."
"What we are trying to achieve is increased downside protection and reduced volatility without sacrificing returns. Many alternative strategies are not dependent on market direction to generate positive returns."
Michael Banwell, CFP
Banwell Financial Inc.

Yale Endowment has often been considered one of the most well managed funds in the world and has very little exposure to traditional stocks, bonds, and cash.

"The heavy allocation to nontraditional asset classes stems from their return potential and diversifying power..."
2014 Yale Endowment Report

Many publicly traded markets like the S&P 500 are highly efficiently priced making it difficult for active money managers to add value. Alternative asset classes tend to be less efficiently priced, and therefore offer greater opportunities for skilled managers to exploit and profit from pricing inefficiencies.

Alternative asset managers strive to generate positive returns independent of the direction of publicly traded debt or equity markets. Inherent in this thinking is preservation of capital during periods of market stress, and also, importantly, making money even in a declining market.

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