Liquid alternatives offer broader access to unconventional strategies, but may not provide the exact outcome investors expect.

What are liquid alternatives?
What are the advantages of liquid alternatives?
What are the disadvantages of liquid alternatives?
How can I find liquid alternative ETFs at Schwab? And where should I begin my research?
Liquid alternative fund categories
Alternative | |
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Digital Assets | Digital asset portfolios provide exposure to blockchain, stable coins, currency assets, smart contracts platforms, exchange assets, privacy assets, yield farming, and nonfungible tokens (NFTs), among other assets. Portfolios may gain access to digital assets through physical or derivative exposures and incorporate both long-only investments and other hedging techniques. |
Equity Market-Neutral | Equity market-neutral strategies attempt to profit from long and short stock selection decisions while minimizing "systematic" risk (i.e., risk inherent to the overall market, not just a specific industry or stock). They try to achieve this by matching long positions within each area against offsetting short positions. |
Event-Driven | Event-driven strategies attempt to profit when security prices change in response to events such as bankruptcies, mergers and acquisitions, emergence from bankruptcy, shifts in corporate strategy, and other atypical events. Activist shareholder and distressed investment strategies also fall into this category. |
Macro Trading | Macro trading strategies look for investment opportunities by studying such factors as the global economy, government policies, interest rates, inflation, and market trends. These funds are not restricted by asset class and may invest across such varied assets as global equities, bonds, currencies and commodities. |
Multi-Strategy | Multi-strategy portfolios offer investors exposure to two or more alternative investment strategies, as defined by Morningstar's alternative category classifications. Multi-strategy funds typically aim to have low to modest sensitivity to traditional market indexes. |
Options Trading | Options trading strategies use a variety of options trades, including put writing, options spreads, options-based hedged equity, and collar strategies, among others. |
Systematic Trend | Systematic trend strategies primarily implement trend-following, price-momentum strategies by trading long and short liquid global futures, options, swaps, and foreign exchange contracts. |
Nontraditional Equity | |
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Derivative Income | Derivative income strategies primarily use an options overlay to generate income while maintaining significant exposure to equity market risk. Income is typically generated through covered call writing strategies, for example, while traditional equity risk factors dictate a substantial portion of the return. |
Long-Short Equity | Long-short equity portfolios hold sizeable stakes in both long and short positions in equities, exchange-traded funds, and related derivatives. |
Allocation | |
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Global Allocation | Global-allocation portfolios seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds, and cash. While these portfolios do explore the whole world, most of them focus on the U.S., Canada, Japan, and the larger markets in Europe. |
Tactical Allocation | Tactical allocation portfolios seek to provide capital appreciation and income by actively shifting allocations across investments. These portfolios have material shifts across equity regions, and bond sectors on a frequent basis. |
Taxable Bond | |
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Nontraditional Bond | Inclusion in nontraditional bond is informed by a balance of factors determined by Morningstar analysts. Funds in this group typically have the flexibility to manage duration exposure over a wide range of years and to take it to zero or a negative value. |
Miscellaneous | |
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Trading - Miscellaneous | These funds seek to generate returns equal to a fixed multiple (positive or negative) of short-term returns of an index that is not equity, fixed-income, or commodity linked. Many of these funds seek to generate a multiple of the daily or weekly return of the reference index. Trading funds are not considered suitable for a long-term investor and are designed to be used by active traders. |