Alternative Investments

By combining alternative strategies with traditional assets, individual investors have an opportunity to create more efficient portfolios, targeting steady gains and wealth preservation through up and down markets alike.

In recent years, diversification-minded investors have increasingly added alternative investments to their traditional portfolios. Because alternative investments do not generally move in tandem with the equity and fixed income markets, they provide unique risk and return properties generally not associated with traditional investments. Thus their prudent use may help qualified investors capture upside potential while minimizing downside risk.

Alternative investments cover a broad range of strategies and structures that fall outside the boundaries of traditional asset categories. They include hedge funds, managed futures, private equity and real estate.

A hedge fund is a private pool of assets that may invest in a diverse array of instruments, common stocks and bonds, but may also include futures, options, swaps and other complex derivatives. Hedge funds are generally managed with a view to minimizing losses during turbulent markets while seeking superior risk-adjusted returns.

Managed futures seek to transform market volatility into profits. A managed futures program is an investment in a skill-based strategy using futures and forward contracts. Futures are contracts to deliver specified commodities or financial instruments at a future time; forward contracts are agreements to purchase or deliver commodities at a future time at a predetermined price.

The potential benefits of adding managed futures to a diversified portfolio include:

• Enhanced overall portfolio returns with reduced risk

• The ability to profit from diverse investment environments

• Global diversification: Managed futures funds can participate in more than 80 markets around the world.

Private equity funds are pools of actively managed capital that invest primarily in privately held companies, with the intent of improving operations and adding value. Private equity managers seek to create value in the companies by improving operations, reducing costs, selling non-core assets and maximizing cash flow. Finally, real estate can be acquired either through direct ownership or indirect investment in securities.

Before investing, be sure to review the detailed explanation of risks, together with other information in the relevant offering materials. These include – but are not limited to – information regarding the tax treatment of the investment. Keep in mind that neither UBS Financial Services Inc. nor any of its employees provide tax or legal advice. Please consult your tax and legal advisors regarding your specific situation.

James B. Marcus is Vice President – Investments Advisory & Brokerage Services, The Baum Consulting Group, UBS Financial Services, Inc.