MT Wealth: Hedge Funds and other alternatives

In this instalment of our quarterly series on personal finance, in association with UBS Wealth Management, Steve Lodge broadens the portfolio.

Once upon a time, investors liked to think shares would double in value in five years, but over the past five years, many stock market investors will have made no profit at all. The bursting of the technology investment bubble in 2000 and the halving of the UK stock market's level through to 2003 have inevitably led to a greater focus on reducing risks and a search for new ways of making decent returns.

Buy-to-let residential property has been the most obvious beneficiary of this disillusionment with shares. But a new group of alternative investments has entered the mainstream, as hedge funds, private equity and venture capital, commodities and commercial property are increasingly considered.

According to many experts, these alternatives should add up to about 20% of affluent Britons' holdings. Their appeal has, inevitably, been boosted by strong performance in recent years. Advisers claim that the key attraction of alternatives is their ability to perform when other stock market investments fall in value, thus smoothing overall returns.

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