Chart of the Week: What Alternatives Are Worthy of Attention?

The S&P 500 has rallied in recent days and was up close to 20% for the year. However, heading into 2024, many advisors are exploring a range of investment ideas that offer exposure beyond the stock market. The focus is on lowering the risk profile of the portfolio via diversification. In a late October webcast with Global X, we asked, “In the pursuit of risk-mitigation opportunities, which investment vehicles do you typically use?” The most frequently chosen answer was investment-grade bonds (68%) followed by options (51%). Commodities (39%) and managed futures (19%) were also being used.

Alternative Income and Investment-Grade Corporate Bonds in Demand

Investment-grade corporate bonds has been a popular choice in many VettaFi advisor surveys. We have written about the Vanguard Short-Term Corporate Bond ETF (VCSH) and its peers. VettaFi also covered advisors’ growing comfort in options strategies like the Global X S&P 500 Covered Call ETF (XYLD) and its brethren. These ETFs provide enhanced income by combining equity exposure with covered calls.

However, we saw in 2022 that stock-based and bond-based ETFs can go down sharply in value at the same time. XYLD and VCSH were down 12% and 5.6%, respectively. There are diversification benefits to adding an alternative like commodities or managed futures to a broader portfolio.