Principal Funds Vision Series: Alternative Strategies: Addressing Market Risk — An Alternative Approach

Financial professionals and investors seek to mitigate idiosyncratic risk, or asset specific risk, through portfolio diversification. Once that is achieved, market risk still remains. The answer for combating market risk, thereby reducing volatility, in portfolios lies in creating a mix of assets and strategies that provide a purpose other than the investments used in a “long-only” or traditional asset mix. The purpose of an alternative investment strategy is to primarily hedge risk while seeking to achieve positive absolute returns or reduce losses during periods of extreme volatility, or what are commonly referred to as “tail events.”

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