Alternative investment strategies that beat the market

It’s important to consider diversification and alternative investment strategies in order to withstand major market moves in the U.S. and exceed the returns of the major market indices. Attached are some different strategies that can be employed to meet this objective:

International:

Now is an opportune time to take advantage of a new offering that became available for investors looking to capitalize on the continued boom in real estate investment trusts (REIT) overseas. While a lot of the U.S. REITs have either lost their momentum or have seen their share prices rise so much that their yields have dropped substantially, there are numerous opportunities overseas. Some of these can be purchased in the US as ADRs, but ideally, by letting subject matter experts manage a portfolio of 224 companies spread throughout 19 countries, you can minimize your costs, diversify your risk, and frankly, increase your odds of successfully exceeding the returns of any individual holdings as well as the U.S. indices.

WisdomTree International Real Estate Fund (DRW) has a respectable expense ratio of 0.58%. The weighting is primarily in the countries Australia, Hong Kong and Japan; a third of the ETF is in Europe. The firm claims a backtested return of over 14% over the past 10 years, trouncing the S&P500 return of around 8%. I would certainly recommend this ETF as a 5-10% portion of any portfolio given its international diversification, its sector diversification and its ability to withstand market downturns due to the high yield component of the individual holdings. Granted, the international and emerging markets have been extremely hot and do carry significant volatility, but the U.S. market is somewhat saturated now as well. In addition to some commodities and some conservative components, this instrument would be a healthy addition to any portfolio absent other similar holdings.

Hedged Mutual Fund for Regular Investors:

The norm for hedge fund investing is that you have to have a minimum annual income exceeding $200,000/year and have at least $1million net worth. Not all of us can make that claim. Well, there are alternatives for regular people like you and I which actually match or beat some of the top hedge fund performance histories and don’t come with the fees exceeding 20% of profits that the hedge funds bring with them. This is the first in a series of posts outlining unconventional investments. The investment du jour is Baron Partners and their performance is worth mentioning.

The fund is pretty heavily weighted in large casino/hotel companies, which has driven the strong performance of late, but there’s no reason to believe this industry is at any particular risk compared to the general market at the moment. Additionally, they retain the ability to go short up to 35%. Your standard mutual fund never maintains a short position, which is what helps drive the incremental performance and ride out volatility.

Performance:

Since inception, it has more than doubled the return of the general market indices. While the Dow and the Nasdaq have risen about 50% since its inception in 2002, the fund has risen almost 150%. This spectacular performance comes with a rather low minimum investment of just $2000 and the expense ratio is 1.35%, which is in line with your typical actively managed fund (of which very few ever beat the market, but still charge you this fee).