Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Looking beyond Stocks, Bonds 'Third Pillar' Can Offer More Diversity

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Looking beyond Stocks, Bonds 'Third Pillar' Can Offer More Diversity

Article excerpt

A growing number of financial advisers have recognized that the traditional concept of portfolio diversification -- stocks and bonds -- has become too narrow in light of the possibility of inflation and higher interest rates coming down the road.

"Most people only think of stocks and bonds for their portfolios, but alternative investments can be a very powerful part of the overall picture," said Bob Hapanowicz, president of H&A Wealth Advisors, Downtown. "A lot of people are uncomfortable with alternative assets. But sometimes the right thing to do is not always to most comfortable thing to do."

Alternative assets, which are not directly tied to the ups and downs of stocks and bonds, include commodities, real estate investment trusts, managed futures, hedge funds, private equity investments and foreign currencies, to name a few.

Rob Arnott, who manages one of the largest fixed income funds in the world at Newport, Calif.-based Pimco -- the $33 billion All Asset Fund (PASAX) -- has coined a new phrase for alternative assets: the Third Pillar.

Many of the investments in that pillar had in the past only been available to super-wealthy individuals or institutional investors such as hedge funds, pensions and endowments because of the high minimum investment required.

Now Main Street investors have these tools at their disposal through a wide range of mutual funds and exchange traded funds.

Some retail funds offering alternative investments include Aberdeen Equity Long-Short (MLSAX), Forward Tactical Growth (FTGMX), Hussman Strategic Growth (HSGFX), Touchstone Merger Arbitrage Fund (TMGCX), BlackRock Global Allocation (MDLOX), Wells Fargo Advantage Absolute Return (WARDX) and AQR Managed Futures (AQMIX).

"The reason why these investments are popular, particularly with institutions, is that it provides them with the ability to truly diversify into other segments and strategies that are not supposed to correlate with the traditional stock and bond markets," said Carrie Coghill, president and CEO of Coghill Investment Strategies, Downtown.

"In other words, if you are truly diversified, all of your investments should not be going up and down for the same reasons," she said. …

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