LIQUID ALTERNATIVE INVESTMENTS

​Liquid alternative investments were introduced with great fanfare after the Credit Crisis of 2008. The pitch for the mutual funds and ETFs that used hedge fund strategies emphasized their advantage as substitutes for bonds in investment portfolios. These funds have proliferated in the intervening years and the pitch has not changed materially. Laurence Siegel presents a comprehensive analysis of liquid alternative investments from the standpoint of performance, risk, and portfolio diversification. His findings are that these investments do not live up to their hype. For the most part, their performance lags market indexes, partly because of high fees. With a few exceptions, they fail to provide diversification benefits (they are highly correlated with equities). As a result, Siegel discourages investments in alternative investments (including liquid alts) for high net-worth individuals (with assets of $1-10 million). He does recommend alternative investments for institutional investors and ultra-net-worth individuals with the resources and knowledge to understand and evaluate alternative investments. This recommendation aligns with the "endowment model," which is based on the work of David Swensen, who also states that alternative investments are only effective for these groups.
https://larrysiegel.org/alternatives-for-the-masses/