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Alternative Investment Instruments for Portfolio Diversification Strategies

Student: Budanov Ilya

Supervisor: Elena Dimova

Faculty: HSE Banking Institute

Educational Programme: Financial Analyst (Master)

Year of Graduation: 2019

In view of increasing correlation between traditional assets in portfolios together with abundance of macroeconomic shocks on the markets, investors have to elaborate on new approaches towards portfolio diversification. Inclusion of alternative investments into portfolios appears to be one of the most prominent opportunities in this case. It encompasses a wide range of strategies - from defensive or countercyclical ones to more aggressive and return-oriented. But their common and crucial feature is that plenty of them contribute to overall portfolio risk reduction. Within the framework of this study author provides an overview of different alternative investment instruments and observes their effect on portfolio risk-return characteristics. Different indices are used as benchmarks for alternative instruments, but many of them are possible to invest in through ETF’s. Results show to what extent implementation of alternative instruments allow to diversify the portfolio and conduces with optimal strategies for investor during 2004-2019.

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