Alternative Investments: Study Session 11
Study Session Materials
Complete List of CFA Program Readings
Topic Overview
Alternative Investments for Portfolio Management
Alternative investments comprise groups of investments with risk and return characteristics that differ markedly from those of traditional stock and bond investments. Common features of alternative investments include:
- Relative illiquidity, which tends to be associated with a return premium as compensation
- Diversifying potential relative to a portfolio of stocks and bonds
- High due diligence costs
- Unusually difficult performance appraisal, due to the complexity of establishing valid benchmarks
Many institutional and high-net worth individuals make portfolio allocations to alternative investments that are comparable in size to those they make to the traditional asset classes of stocks and bonds. In doing so, such investors may be seeking risk diversification and/or greater opportunities to apply active management skills and capture alpha. Portfolio managers who take advantage of the opportunities presented by alternative investments may have a substantial advantage over those who do not.
The first reading in Study Session 11 presents an overview of the
investment classes generally considered as alternative investments. The
balance of the study session examines the role of swaps, forwards, and
futures in managing certain alternative investments.
View learning outcome statements (LOS) for reading objectives.
Complete List of CFA Program Readings
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“Alternative Investments Portfolio
Management” Ch. 8, Managing Investment Portfolios: A Dynamic Process, 3rd edition, Jot K. Yau, Thomas Schneeweis, Thomas R. Robinson, and Lisa R. Weiss (Wiley, 2007) |
View LOS |
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“Swaps” Ch. 8, pp. 239-244, 259-262, Derivatives Markets, 2nd edition, Robert L. McDonald (Addison Wesley, 2006) |
View LOS |
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“Commodity Forwards and Futures” Ch. 6, Derivatives Markets, 2nd edition, Robert L. McDonald (Addison Wesley, 2006) |
View LOS |