By Richard Brink
Gaining more in up markets than you lose in down markets is at the heart of success in alternative investments. It's not magic - the secret is an effective blend of market and non-market returns.
The difference between success and failure in alternative investments usually comes down to a manager's skill. Specifically, designing a strategy that delivers an effective blend of market returns (beta) and non-market returns (alpha) is imperative to achieving investors' objectives.
UPSIDE/DOWNSIDE: WHY IT MATTERS
As we've discussed, the up/down capture ratio helps illustrate why alternatives, on the whole, have outperformed traditional 60/40 stock/bond portfolios over the long haul. It's not easy to consistently grab more of the market's upside than its downside. In most cases, alpha is the key ingredient - how much value does a strategy add beyond market exposure?
If we look at a hypothetical equity portfolio, we begin to…