Course Content
Alternative Investments Vs. Traditional Investments
This topic is covered under LOS A of Reading 58
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LOS A
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LOS A
Categories of Alternative Investments
This topic is covered under LOS B of Reading 58
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LOS B
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LOS B
Benefits of Alternative Investments
This topic is covered under LOS C of reading 58, which requires you to 'describe potential benefits of alternative investments in the context of portfolio management'.
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LOS C
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LOS C
Hedge Funds, Private Equity, Real Estate, Commodities, Infrastructure, and Other Investment – Explained
This topic is covered under LOS D and E of Reading 50, which requires us to: a. describe hedge funds, private equity, real estate, commodities, infrastructure, and other alternative investments, including, as applicable, strategies, subcategories, potential benefits and risks, fee structures, and due diligence; b. describe, calculate, and interpret management and incentive fees and net-of-fees returns to hedge funds; and c. describe issues in valuing and calculating returns on hedge funds, private equity, real estate, commodities, and infrastructure.
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Hedge Funds
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Private Equity
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Real Estate
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Commodities
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Infrastructure
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Others
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LOS D and E
Risk Management
This topic is covered under LOS G of Treading 58, which requires us to 'describe risk management of alternative investments'.
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LOS F
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LOS F
Alternative Investments – Question Bank
Some questions to test your level of preparation for the exam.
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Question Bank
Alternative Investments
About Lesson

1.  Commodities are the physical products with the carrying cost.

2.  Most exchange-traded derivatives are made up of commodity derivatives, and their returns are based on price changes.

3.  The commodity derivatives include futures, options, and swaps.

4.  The commodity indices generally use futures instead of spot prices and differ in terms of commodities included.

5.  The other commodity investment vehicles are:

    a.  Exchange-traded funds,

    b.  Common stocks of commodity producers and users,

    c.  Managed futures (these are the actively managed investment funds, generally set up as a partnership, and trades in futures contracts),

    d.  Individual managed accounts,

    e.  Commodity funds (including private partnerships and mutual funds).

6.  The commodities too, have a low correlation with the other asset classes, thus provide diversification benefits.

7.  The commodities provide a potential hedge against inflation.

8.  The commodity prices are hugely dependent upon the supply and demands in the spot market.

The supply is dependent upon the production, lead times, external events, and inventory levels.

The demand is highly growth-related.

To understand the movement of prices of the commodity, we need to understand the demand and supply characteristics of the physical products.

1.  Sources of Return

a.  Roll Yield. It is the return that is earned by the investor as the futures prices converge with the spot price over a period of time.

b.  Collateral Yield. It is the interest earned on the collateral posted as a security deposit.

c.  Spot Price. Changes in the spot price are also an important source of return for commodities.

 

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