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Maximize Your Investment Potential with Alternative Mutual Funds

Have you heard of Alternative Mutual Funds? Have you ever wondered why they're worth investing in? 

Do you want to know the best investment strategies for Alternative Mutual Funds? Look no further because this informative article has all the answers for you.

Understanding Alternative Mutual Funds

Alternative Mutual Funds

Alternative mutual funds, also known as Exchange Traded Funds (ETFs), are investments in non-traditional securities such as commodities, real estate, or leveraged loans. These mutual funds are generally unsuitable for the average investor. However, they can be used as a diversification tool if used properly.

Investing in alternative mutual funds can be a smart strategy for accessing non-traditional investment securities. However, before investing in alternative mutual funds, every investor should research whether this type of investment suits them.

Definition of Alternative Mutual Funds

The term "alternative mutual funds" generally refers to mutual funds, hedge funds, or ETFs invested in unconventional investment securities. Broadly, these unconventional investments are classified as securities other than stocks, bonds, and cash.

Alternative mutual funds are typically invested in leveraged loans, real estate, commodities, and unregistered securities such as jewelry or artworks.

Alternative Mutual Fund Investment Strategies

Alternative mutual fund investment strategies are generally employed for portfolio diversification. This is because the performance of alternative investments typically has a low correlation with market indexes such as the IHSG.

Some alternative mutual funds may focus on a specific investment strategy, meaning they are invested in a single area, such as commodities. Others may be invested in a variety of sizes.

Generally, alternative mutual fund investment strategies tend to be more complex than conventional mutual fund investment strategies.

For example, an alternative mutual fund may be invested in easily understood securities such as bonds, currencies, or derivatives. Alternatively, the fund may aim to achieve above-average market returns or achieve "absolute returns" through a combination of long and short investment strategies.

What Should Be Considered Before Implementing Alternative Mutual Fund Investment Strategies?

Here are some points to consider before implementing alternative mutual fund investment strategies:

  • Market Risk: As alternative mutual funds are invested in unconventional securities, investors should be aware that price fluctuations may be greater than those of conventional securities such as bonds or stocks.
  • Expense Ratios: Due to their nature, alternative mutual funds tend to have higher expense ratios than most mutual funds and ETFs. For example, management fees may be higher due to the need for more complex and extensive research and higher trading levels compared to actively managed mutual funds on average.
  • Structure: As alternative mutual funds often need a transparent legal system, the portfolio holdings of these investments may not be evident to investors. Do your best to understand the fund's goals and ownership. Investors should also understand their ownership and how it functions in the capital market.
  • Fund Manager: As most alternative mutual funds are actively managed, it is essential to know the fund manager's track record. Ensure that the manager has years of experience and a performance record related to alternative mutual funds.
  • Past Performance: Past performance of an investment product is not a guarantee of future results. However, history can provide insight into what can be expected from the mutual fund. Look for mutual funds with long-term returns, at least five years. Avoid mutual funds with a short history. Be cautious of investing in alternative mutual funds with large fluctuations in performance.
  • Minimum Investment: Many alternative mutual funds have a minimum initial investment requirement, possibly in the hundreds of millions or more. Investors looking to invest in this type of fund may need to have a net worth of at least $1 million before being able to invest.

Essential Points to Consider When Investing in Alternative Mutual Funds

Alternative mutual funds are not suitable for all investors. These investments typically have higher market risk, higher costs, and higher minimum investments compared to the average mutual fund.

Investors looking to diversify their strategy can achieve the same result by building a portfolio of mutual funds in various categories, assets, and capitalizations. Investors can also diversify into focused areas such as industry sectors.

Investors can also choose mutual funds or ETFs that combine alternative securities or strategies in their portfolios. While alternative mutual funds are not required to diversify or achieve above-average market returns, these investments can be used appropriately if the investor is careful and does research before investing.