Advisors are turning to this asset class for diversification, stability

Alternative investments are gaining traction among financial advisors who are seeking diversification just as rising geopolitical tensions and shaky tariff policy rattle stocks. A survey of nearly 200 financial planners by the Financial Planning Association and the Journal of Financial Planning from March 23 to May 4 found that while these investments aren’t in widespread use among advisors, they’ve seen significant growth compared to last year. For instance, more than 17% of the advisors are incorporating options into their practice, nearly double from last year, the poll found. Some 23% are using individually traded real estate investment trusts, up from 14.9% in 2024. More advisors also embraced private debt, with about 19% of participants saying they’re turning to this asset class, compared to 12.5% last year. The results arrive as investors grapple with an S & P 500 that’s up just 2% this year, and volatile movements in Treasury yields, as well as escalating conflict between Israel and Iran. “This use of alternatives as an asset class is a natural evolution in the process of bringing greater diversification and greater consistency of portfolio performance as a whole,” said Paul Brahim, certified financial planner and managing director at Wealth Enhancement Group in Pittsburgh. He is also the 2025 president of the Financial Planning Association. An evolution of the 60/40 allocation How advisors implement alternatives in their practices will vary, but they tend to see it as a complement to investors’ asset allocation – rather than a complete overhaul of the split between stocks and bonds. Brahim said that the 60/40 model that’s typically split between stocks and bonds has evolved to include exposure to domestic and foreign assets, a range of market capitalizations, different flavors of fixed income and now alternative investments. Jon Ulin, CFP and managing principal at Ulin & Co. Wealth Management in Boca Raton, Fla., said that his practice has transitioned from a 60/40 allocation to a 50/30/20. The 20% portion is split among structured notes to offer downside protection and income, as well as private credit, private equity, real estate and commodity ETFs. “We aren’t reinventing the wheel, but instead we’re trying to smooth out people’s results,” he said. Key considerations for investors hoping to dip a toe into alternatives include correlations in price performance versus other asset classes and strategies, the use of leverage — which can magnify gains and losses — access to liquidity and fees, Brahim said. “The objective of alternatives is to reduce overall portfolio volatility to create more consistency in returns so that we get better compounding,” he said. Access through ETFs Esoteric products like structured notes and private credit may not be easy for individual investors to access, but retail investors can tap into alternatives through exchange traded funds. “If you’ve never done alts before, the best way is to use the ETFs that are within the scope,” said Shana Sissel, founder of Banrion Capital Management. Her firm, based in Glenview, Ill., provides financial advisors with a platform for incorporating alternative investments into their practices. Sissel said that in a hypothetical situation, an individual with a $1 million portfolio might earmark $800,000 to a 60/40 strategy and direct the remaining $200,000 into alternatives. She likes ETFs that are “hedge fund like,” calling out AGF U.S. Market Neutral Anti-Beta Fund (BTAL) and the Clough Hedged Equity ETF (CBLS) . When strategies incorporate options, she prefers that they be focused on hedging market risk, rather than providing income. .SPX BTAL 1Y mountain The S & P 500 versus the AGF U.S. Market Neutral Anti-Beta Fund (BTAL) in the past 12 months BTAL aims to provide negative beta exposure to U.S. stocks – meaning, it strives to move in the opposite direction of the market. In 2022, BTAL did just that, rising around 20% while the S & P 500 tumbled more than 19%. This year, with the broad market up a mere 2%, BTAL is off about 1%. CBLS holds a portfolio of long and short positions and seeks to minimize volatility. The fund lost more than 11% in 2022’s tumult, but it’s up more than 8% this year. Pricing will vary for these strategies: CBLS’s total annual fund operating expenses add up to 1.90%, while BTAL’s fees weigh in at 0.45%. “I want to look at the strategy and how it correlates to fixed income and equities,” Sissel added. “These strategies could be doing different things, but the role they play is as a diversifier.”