You are now leaving the PIMCO website.
Skip to Main Content

How Can Alternatives Help During Periods of Market Volatility?

During periods of market uncertainty, many investors need options – and opportunities.

Alternative strategies, which can have low or no correlation to traditional markets, may also offer investors access to an expanded set of market opportunities. Simply put, investing in alternatives can help provide better portfolio diversification for those who can accept a potentially greater level of risk. During times of market stress, this is especially important.

Here’s how adding alternatives to a portfolio can create new opportunities:

1. Move in a different direction

It’s important to remember that there are different ways to engage with markets beyond the more traditional buying or selling of individual securities. For example, some alternative strategies employ techniques designed to profit when a stock price falls; others aim to offset the risk of unexpected price movements through “hedging”. These approaches can help buffer a portfolio when public markets are volatile.

2. Access new opportunities

Alternatives broaden the investable universe. When traditional investments seem lackluster and maybe even scary, alternatives can offer additional opportunities by tapping into specialized marketplaces beyond stocks, bonds and cash. This may include private markets, and other investments like commodities, real estate and infrastructure.

3. Understand the potential advantages of illiquidity

During times of market stress, alternative strategies that are not in daily-liquidity vehicles may be less likely to be forced to sell quickly and at a lower price than their more liquid counterparts like mutual funds, which may need to raise cash to meet redemption requests from investors. At the same time, they may be positioned to take advantage of attractive buying opportunities that are discounted because of market stress and dislocations. Plus, more illiquid assets often demand higher yields from investors due to the increased risks.

Is now the time to step into alternatives? Position for a post-crisis economy

While the ongoing COVID-19 crisis has already done its share to rattle markets and investor confidence, uncertainty for what’s yet to come may be as overwhelming. Now more than ever, investors need to consider all of their options when building a portfolio for their future. This may mean a number of things, including: boosting diversification, investing in new or different markets and taking advantage of unique opportunities caused by the current dislocations in areas like private credit.

Being prepared to weather a post-COVID environment by thinking offensively may be one of the most valuable strategies of all.


Past performance is not a guarantee or a reliable indicator of future results.

Alternative investments and hedge funds involve a high degree of risk and can be illiquid due to restrictions on transfer and lack of a secondary trading market. They can be highly leveraged, speculative and volatile, and an investor could lose all or a substantial amount of an investment. Alternative investments may lack transparency as to share price, valuation and portfolio holdings. Complex tax structures often result in delayed tax reporting. Compared to mutual funds, private funds are subject to less regulation and often charge higher fees. Alternative investment managers typically exercise broad investment discretion and may apply similar strategies across multiple investment vehicles, resulting in less diversification. Diversification does not ensure against loss.

There are significant differences between public and private equities, which include but are not limited to, the fact that public securities have a lower barrier to entry than private equity. There is also greater access to information about public companies. Private equities typically have a longer time horizon than public equities before profits, if any, are realized. Public equities provide greater liquidity, whereas private equities are considered highly illiquid. Private credit involves an investment in non-publicly traded securities which are subject to illiquidity risk. Portfolios that invest in private credit may be leveraged and may engage in speculative investment practices that increase the risk of investment loss. Investments in Private Credit may also be subject to real estate-related risks, which include new regulatory or legislative developments, the attractiveness and location of properties, the financial condition of tenants, potential liability under environmental and other laws, as well as natural disasters and other factors beyond a manager’s control. Liquid alternatives are generally investment vehicles that offer typical hedge fund strategies in a mutual fund format with daily liquidity. Managed futures contain heightened risk, including wide price fluctuations and may not be suitable for all investors. Short selling and short position derivative activities are considered speculative and involve significant financial risk. Short positions profit from a decline in price but can generate a loss if the price increases. Shorting may also result in higher transaction costs which reduce return.

This is neither an offer to sell nor a solicitation of an offer to buy interest in any product or strategy in any jurisdiction. Statements concerning financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that any investment will achieve its objectives, generate profits or avoid losses. Alternative investments may be suitable only for persons of adequate financial means who have no need for liquidity with respect to their investment and who can bear the economic risk, including the possible complete loss, of their investment. PIMCO does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax or legal questions and concerns.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This presentation contains the current opinions of the manager and such opinions are subject to change without notice. This presentation has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this presentation may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark or registered trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2022, PIMCO.

Select Your Location


Europe, Middle East & Africa