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By Nadia Papagiannis, CFA | 07-29-2010 12:32 PM

What Can Alternatives Do For Investors?

Aston/Lake Parners' Rick Lake makes the case that allocating a portion of your portfolio to alternative investment strategies can reduce volatility and boost returns.

Nadia Papagiannis: Hello, my name is Nadia Papagiannis. I'm the Alternative Investment Strategist here at Morningstar.

And today I have with me Rick Lake. Rick Lake is the Manager of the Aston/Lake Partners LASSO Alternatives Fund. Thanks for being here today, Rick.

Rick Lake: Great to be here.

Papagiannis: Great. Well yesterday was the First Annual Alternative Strategies Conference sponsored by FA Magazine and you spoke at that conference.

And this conference was intended to educate advisers as so to the new and innovative tools available to them in terms of alternative investing. So, how do you see advisers investing allocating to alternative investments today?

Lake: Well, first of all, advisers are looking for number one, tools to manage risk; number two, additional sources of return; and number three, diversification. How to you build portfolios with multiple strategies and multiple assets in a very complicated and ever-changing world.

Papagiannis: And hopefully, alternative investments do all those three?

Lake: Well, that's the hope and advisors are looking at which alternative strategies to integrate with their portfolios and then how much they should use in their portfolios.

Papagiannis: Well, let's some put some numbers around this then, so you have a fund that's a diversified portfolio of various alternative strategies? And so if you took a 20% to 30% allocation, let's call it 25% or whatever you want to say, how would that help? How would that improve a 60:40 portfolio?

Lake: Well, over the long haul that type of allocation could bring a 10% to 15% to even 20% reduction in volatility and over time at least in the last decade added almost a full percentage point to compound returns over that 10, 11 year difficult period.

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