Alternative ETFs for Investors Seeking New Opportunities

If you're looking to diversify your portfolio and explore new investment opportunities, alternative ETFs can be a great option. They offer a unique way to gain exposure to a wide range of asset classes, including cryptocurrencies, commodities, and emerging markets.

Alternative ETFs can be a great way to gain exposure to emerging markets, such as the VanEck Vectors Emerging Markets High Dividend Yield ETF, which invests in high-dividend yielding stocks of emerging market companies.

Investing in alternative ETFs can also provide a hedge against inflation, as seen with the Inflation-Protected Bonds ETF, which invests in Treasury Inflation-Protected Securities (TIPS).

With their low costs and flexibility, alternative ETFs can be a great addition to any investment portfolio.

For more insights, see: Emerging Market Equity Fund

Alternative ETFs are a type of investment vehicle that employs various approaches, including leverage, derivatives, and shorting stocks. They often follow "absolute return" or "market neutral" strategies that aim to generate returns even when markets are down.

Unlike traditional ETFs, liquid alternative ETFs are designed to behave differently than the equity or bond market. They are required to provide daily liquidity and pricing, as well as regular reporting of their holdings.

These ETFs are not the same as hedge funds, despite their similar investment objectives or strategies. Mutual funds and ETFs that seek alternative-like exposure are limited in the investments and strategies they are allowed to use.

The returns and portfolio characteristics of liquid alternative ETFs may be materially different from those of alternative investments, such as hedge funds.

Consider reading: How Do Hedge Fund Managers Make Money

Alternative ETFs come in various forms, each with its unique characteristics and benefits.

Gold and commodity-based ETFs track the price of gold or other precious metals, such as silver or oil. They offer a way to invest in physical commodities without having to store them.

Some alternative ETFs focus on emerging markets, like the BRIC countries, which include Brazil, Russia, India, and China. These countries have been growing rapidly in recent years.

Other alternative ETFs invest in real estate, such as REITs (Real Estate Investment Trusts), which allow individuals to invest in property without directly owning physical assets.

A different take: Index Funds vs Real Estate

Commodities offer a unique investment opportunity due to their tangible nature and perpetual demand.

Commodities are raw materials like gold, silver, oil, and agricultural products that have real-world uses.

Investors can invest in these goods that are used in various industries and are considered a store of value.

Gold's price is arguably more stable because of its widespread use and perceived value.

Investing in commodities can provide a hedge against inflation and market volatility.

Farmland can be seen as a blend of real estate and commodities, offering a tangible asset with ongoing cash proceeds.

Farm owners can receive positive results from operations and sales of commodities, generating revenue.

Art and collectibles can serve as alternative investments, with some items potentially doubling in value over time.

These items may have historical worth, such as art, sports memorabilia, or entertainment memorabilia.

For instance, items associated with famous artists, movie stars, or athletes may become more valuable as they become more historic.

High-end watches, for example, can appreciate in value as the brand's reputation grows and demand increases.

Take a look at this: How to Become a Private Investor

Cryptocurrencies are an emerging form of digital currency that can be seen as an alternative investment.

They operate outside the traditional scope of stocks and bonds, making them a unique addition to a diversified portfolio.

Some investors may claim that cryptocurrency does not offer a strong hedge against other risk-on investments.

However, it may provide capital appreciation or passive income due to staking rewards.

For your interest: Reits in Ira Accounts

Venture Capital/Private Equity is a type of alternative investment that blurs the lines of stock investments. It involves investing in private companies or start-ups, rather than trading shares of public companies in an open market.

Investors may seek alternative avenues to put capital into private companies or start-ups, which can be a refined branch of stock investments. Venture Capital/Private Equity investments are often used to support early-stage companies or entrepreneurs.

By investing in private companies, investors can potentially benefit from higher returns than traditional stock market investments.

A unique perspective: Private Equity Co Investments

Peer-to-peer lending is a form of alternative investment that involves making loans to individuals or businesses through online platforms.

Investing in peer-to-peer lending can be a bit riskier than traditional investments, as it often involves transacting with riskier clients.

The potential returns on peer-to-peer lending can be higher than traditional investments, making it an attractive option for some investors.

However, the returns are not always higher, and investors should be prepared for the possibility of losses.

Peer-to-peer lending takes a similar form to investing in bonds, but it's done on more private markets.

A fresh viewpoint: Real Estate Investment Returns

Alternative ETFs can offer risk-adjusted returns with lower volatility, especially during periods of market uncertainty.

In a challenging environment with lower returns from traditional asset classes, some investors might explore liquid alts as part of a diversified asset allocation.

Alternative investments, including alternative ETFs, are generally less liquid than traditional investments.

However, they may boast diversification and higher returns compared to more popular forms of investing.

Investors seeking to balance risk and potential returns might find alternative ETFs to be a viable option.

Suggestion: Risk Parity Investing

Regulation of alternative investments can be murky, but it's essential to understand the basics. Alternative investments often fall under the Dodd-Frank Wall Street Reform and Consumer Protection Act, but they don't have to register with the SEC like mutual funds and ETFs.

Accredited investors, who meet specific net worth or income requirements, may be eligible to invest in alternative offerings. These requirements include a net worth exceeding $1 million (not counting their primary residence) or an annual income of at least $200,000 (or $300,000 combined with a spousal income) in each of the two previous years.

Tax implications of alternative investments can be complex and vary greatly depending on the asset class. Some alternative investments, like collectibles and art, may not offer the same tax deductions as traditional investments.

You might enjoy: Wealthfront Tax Loss Harvesting

Regulation of Alternative Investments is often murky, and that's a problem. Alternative investments are subject to the Dodd-Frank Wall Street Reform and Consumer Protection Act, but they don't have to register with the SEC.

You might enjoy: Alternative Risk Transfer

The lack of clear regulations makes alternative investments prone to investment scams and fraud. This is why investors must conduct extensive due diligence before investing.

Accredited investors, with a net worth exceeding $1 million or an annual income of at least $200,000, may invest in alternative offerings. Financial professionals with FINRA Series 7, 65, or 82 licenses also qualify as accredited investors.

The SEC's oversight is limited, as alternative investments are not subject to the same level of regulation as mutual funds and ETFs.

Additional reading: Do Angel Investors Get Equity

The tax implications of alternative investments can be complex, but understanding them is crucial to maximizing returns. The alternative investment industry is expected to grow to $24.5 trillion in assets under management by 2028.

Collectibles and art may not offer the same tax deductions as traditional investments like stocks and bonds. They are explicitly defined by the IRS as a collectible, and net capital gains are subject to a maximum 28% tax rate.

On a similar theme: Alternative Mortgage Loans

Cryptocurrency and other digital assets are subject to evolving tax rules. Digital assets may incur taxable transactions when selling, exchanging, or trading them, resulting in capital gains or losses.

Fluctuations in the value of digital assets often result in taxable events, unlike fluctuations in the value of the U.S. dollar. This can impact your investment strategy and returns.

Some alternative investments, like real estate and certain energy investments, offer tax-deferred or tax-free investing options. This may include 1031 exchanges and Opportunity Zone investments.

A different take: Are Etfs Tax Efficient

As most alternative investments incur a transaction or processing fee, be mindful of maintenance or one-time fees when pursuing alternatives.

Liquid alternative funds are a type of investment that can be quite different from traditional mutual funds and ETFs, so it's essential to understand their characteristics and fees.

These fees can eat into your investment returns, so it's crucial to factor them into your decision-making process.

Liquid alternative funds are required to provide daily liquidity and pricing, as well as regular reporting of their holdings, which is a key difference from traditional investments.

For another approach, see: Gold Star Investments