{"id":667,"date":"2019-09-15T17:32:00","date_gmt":"2019-09-15T17:32:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=667"},"modified":"2026-09-22T19:17:39","modified_gmt":"2026-09-22T19:17:39","slug":"potential-benefits-alternative-investments","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/alternative-investments\/potential-benefits-alternative-investments\/","title":{"rendered":"Potential Benefits of Alternative Investments"},"content":{"rendered":"\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/mbgLBrNuD1U?si=E8cfHA7rnIliE-jW\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"What is the benefit of alternative investments for a portfolio manager?\",\n    \"text\": \"Options:\\n1. Low correlation to public market performance\\n2. Opportunities to hedge against inflation\\n3. All of the above\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is C. Alternative investments provide several benefits to portfolio managers, including low correlation with traditional public markets and opportunities for inflation protection. Option A is correct because many alternative investments have low correlations with traditional asset classes, which can improve portfolio diversification and help manage risk. Option B is correct because certain alternative investments, such as real estate and commodities, can provide protection against inflation. Therefore, Option C, all of the above, is the best answer.\"\n    }\n  }\n}\n<\/script>\n\n\n\n<p class=\"wp-block-paragraph\">Diversification is a well-known strategy used to improve returns and lower risk. Alternative investments manifest different characteristics and returns compared to traditional investments. <strong>Illiquidity<\/strong> in the underlying investments is common. A <strong>l<\/strong><strong>ow correlation<\/strong> of returns with traditional investments offers opportunities for hedging and arbitrage (buying and selling at two different prices at the same time). Most investors look to add value to their portfolio with alternative investments. To achieve this end, they chase better returns or lower their risk through diversification and hedging.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">On the flip side, the alternative market is characterised by <strong>low levels of regulation<\/strong> and <strong>less transparency<\/strong>.&nbsp; Historical data can be difficult to acquire. Besides, each alternative investment offers a unique set of legal and tax considerations.<\/p>\n\n\n\n<!--more-->\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<h2 class=\"wp-block-heading\">Question<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">What is the benefit of alternative investments for a portfolio manager?<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Low correlation to public market performance<\/li>\n\n\n\n<li>Opportunities to hedge against inflation<\/li>\n\n\n\n<li>All of the above<\/li>\n<\/ol>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Solution<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The correct answer is C.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Option A is correct. Low correlation is a great feature in terms of hedging.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Option B is correct. Real estate and commodities offer good inflation protection.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This makes options C the best answer.<\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Reading 50 LOS 50c: <\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>describe potential benefits of alternative investments in the context of portfolio management<\/em><\/p>\n\n\n\n<div class=\"notes_inv\">\n<hr>\n<p><a href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/alternative-investments\/learning-sessions-curriculum-alternative-investments\/\"><em>Alternative Investments &#8211; Learning Sessions<\/em><\/a><\/p>\n<\/div>\n\n\n\n<div style=\"text-align:center;margin:35px 0;\">\n  <a href=\"https:\/\/analystprep.com\/free-trial\/\" target=\"_blank\" rel=\"noopener noreferrer\" style=\"display:inline-block;padding:15px 35px;border-radius:999px;background:#1a73e8;color:#ffffff;font-size:17px;font-weight:600;text-decoration:none;\">\n    Start Free Trial \u2192\n  <\/a>\n\n  <p style=\"margin:25px 0 0;font-size:16px;line-height:1.6;text-align:center;\">\n    Master CFA Level I Alternative Investments concepts, including potential benefits, diversification, risk-return characteristics, and alternative asset strategies with study notes, practice questions, and video lessons.\n  <\/p>\n<\/div>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Diversification is a well-known strategy used to improve returns and lower risk. Alternative investments manifest different characteristics and returns compared to traditional investments. Illiquidity in the underlying investments is common. A low correlation of returns with traditional investments offers opportunities&#8230;<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[11],"tags":[],"class_list":["post-667","post","type-post","status-publish","format-standard","hentry","category-alternative-investments","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v28.8 (Yoast SEO v28.8) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Potential Benefits of Alternative Investments<\/title>\n<meta name=\"description\" content=\"Discover how alternative investments can diversify portfolios, reduce correlation with traditional assets, and offer inflation hedging benefits\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, 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