Alternative investments at John Hancock Investment Management

Alternative investments behave differently than mainstream stocks and bonds, providing a valuable source of portfolio diversification, especially when market volatility rises.

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Alternative investments are designed to help:

  • Pursue unique sources of return
  • Manage the effect of market volatility on your portfolio
  • Potentially improve your portfolio’s risk-adjusted returns

A recurring feature: market volatility tends to follow periods of calm

When market volatility is low, many investors grow comfortable and expect the trend to continue indefinitely. History proves that’s not the case. In fact, severe market swings have tended to spike after periods of calm, and those bouts of volatility have grown more intense in recent decades.

S&P 500 Index,1950–2018 (trading days per year with greater than +/–2% returns)


Volatility can lead to emotional decision-making

Over time, volatility has had a negative impact on investor returns by causing investors to flee stocks when prices are low and to buy back in when prices are high.

Investors abandoned stocks when prices were low and didn’t re-enter the market until too late in the cycle


Three benefits of alternatives

1. Pursue unique sources of return

While alternatives cover a wide variety of investments and strategies, they all pursue return streams that are different from those offered by traditional stocks and bonds.

Alternative investments generally have low correlations to stocks




Emerging-market stocks
Stocks of nations experiencing rapid growth and industrialization, often with a nascent but growing middle class
Merger arbitrage
A strategy focused on securities of companies that are engaged in a corporate transaction
Market neutral
An investment strategy that hedges out specific market risks
Global REITs
Real estate investment trusts (REITs) that typically own and operate income-producing property
Emerging-market bonds
Debt securities issued by developing countries, frequently with different economic drivers and rates of inflation than developed nations
Macro strategies
Top-down strategies in which the investment process is based on movements in underlying economic variables
Relative value
A strategy based on realization of a valuation discrepancy in the relationship between multiple securities
Markets where contracts for raw materials such as wheat are exchanged
A commodity traditionally used as a store of value and a hedge against inflation

Correlation is a statistical measure that describes how investments move in relation to each other, which ranges from –1.0 to 1.0. The closer the number is to 1.0 or –1.0, the more closely the two investments are related.


2. Reduce the effect of market volatility on your portfolio

Adding alternatives that move in opposite directions to traditional assets—or even in the same direction but to a lesser extent—can help your portfolio become more resilient to the market’s inevitable bouts of volatility.

Institutional investors rely on alternatives to manage market volatility

The average university endowment had a 53% allocation to alternative investments in 2018

Alternative strategies
International equities
Domestic equities
Fixed income
Short-term securities

Results are from a survey of 809 universities.

Defined benefit plans, university endowments, and other institutional investors have used alternatives for decades as a way to help:

  • Manage volatility
  • Make annual payouts to retirees
  • Build assets

3. Potentially improve your portfolio’s risk-adjusted returns

By pursuing unique sources of return and hedging against market volatility, alternatives can potentially improve your portfolio’s risk-adjusted return (as measured by Sharpe ratio).

A portfolio that included alternatives produced higher risk-adjusted returns (1/1/00–12/31/18)

Traditional portfolio
With alternatives
Annualized return
Sharpe ratio
Standard deviation
Ending value of $100,000 invested
Asset allocation
Diversified alternatives

Finding the best specialized manager for every fund we offer

Our multimanager approach puts us in a unique position to evaluate the skill sets, track records, and experience of today’s portfolio managers, and our alternatives lineup features a range of portfolios managed by some of the industry’s best teams.

First Quadrant
Graham Capital Management
Manulife Investment Management
Nordea Asset Management
Wellington Management

Explore our alternative funds

At John Hancock Investment Management, our alternative funds are designed to pursue new sources of return, mitigate the impact of market volatility, and improve risk-adjusted returns. We’ve offered alternatives to individual and institutional investors for more than 20 years, and today we oversee over $10 billion in alternatives across a range of strategies, managed by some of the best specialized portfolio teams from around the world.

JCUIX Absolute Return Currency Fund First Quadrant Macro Trading Portfolio diversification
JAAIX Alternative Asset Allocation Fund Manulife Investment Management Multistrategy One-stop alternative allocation solution
JDJIX Diversified Macro Fund Graham Capital Management Macro Trading Core alternative holding
JEEIX Infrastructure Fund Wellington Management Infrastructure Managing downside risk and a potential inflation hedge
JHAIX Multi-Asset Absolute Return Fund Nordea Asset Management Tactical Allocation Core alternative holding
JABGX Real Estate Securities Fund Wellington Management Real Estate Core alternative holding
JSFDX Seaport Long/Short Fund Wellington Management Long-Short Equity Alternative equity holding

Source: Morningstar Direct, as of 12/31/18. Global REITs are represented by the FTSE NAREIT All REITs Index, a market-capitalization-weighted index that includes all tax-qualified real estate investment trusts (REITs). Emerging-market bonds are represented by the J.P. Morgan Emerging Markets Bond Index (EMBI) Global Index, a market-capitalization-weighted index that tracks the performance of U.S. dollar-denominated Brady bonds, Eurobonds, and traded loans issued by sovereign and quasisovereign entities. Commodities are represented by the Morningstar Commodities Index, a broadly representative benchmark of commodities traded through futures contracts on U.S. exchanges. Gold is represented by the Morningstar Gold Commodity Index, a subset of the Morningstar Commodities Index. Emerging-market stocks are represented by the MSCI Emerging Markets Investable Market Index, designed to measure equity market performance in the global emerging markets. Relative value is represented by the HFRI Relative Value Index, which maintains positions in which the investment thesis is predicated on realization of a valuation discrepancy in the relationship between multiple securities. Macro strategies are represented by the HFRI Macro Index, which involves investing by making leveraged bets on anticipated price movements of stock markets, interest rates, foreign exchange, and physical commodities. Merger arbitrage is represented by the HFRI Merger Arbitrage Index, sometimes called risk arbitrage, which involves investment in event-driven situations such as leveraged buyouts, mergers, and hostile takeovers. Market neutral is represented by the HFRI Equity Market Neutral Index, which seeks to profit by exploiting pricing inefficiencies between related equity securities, neutralizing exposure to market risk by combining long and short positions. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. It is not possible to invest directly in an index. Diversified alternatives portfolio is an equal weighting of all of the above indexes. Diversification does not guarantee a profit or eliminate the risk of a loss. Past performance does not guarantee future results.

Standard deviation is a statistical measure of the historic volatility of a portfolio. It measures the fluctuation of a fund's periodic returns from the mean or average. The larger the deviation, the larger the standard deviation and the higher the risk.

Absolute return funds are not designed to outperform stocks and bonds in strong markets. They employ certain techniques intended to reduce risk and volatility and provide protection against a decline in assets. There is no guarantee that the fund will achieve its objectives. The use of hedging and derivatives may increase volatility and costs. The issuer or grantor of a security, or counterparty to a transaction, may be unable or unwilling to make principal, interest, or settlement payments. Liquidity–the extent to which a security may be sold or a derivative position closed without negatively affecting its market value, if at all–may be impaired by reduced trading volume, heightened volatility, rising interest rates, and other market conditions. Currency transactions are affected by fluctuations in exchange rates, which may adversely affect the U.S. dollar value of a fund's investments. The fund's strategies entail a high degree of risk. Leveraging, short positions, a non-diversified portfolio focused in a few sectors, and the use of hedging and derivatives greatly amplify the risk of potential loss and can increase costs. A non-diversified portfolio holds a limited number of securities, making it vulnerable to events affecting a single issuer. The stock prices of midsize and small companies can change more frequently and dramatically than those of large companies. Investments in higher-yielding, lower-rated securities include a higher risk of default. Exchange-traded funds reflect the risks inherent in their underlying securities, including liquidity risk. Alternative Asset Allocation Fund's performance depends on the advisor's skill in determining the strategic asset class allocations, the mix of underlying funds, and the performance of those underlying funds. The underlying funds' performance may be lower than the performance of the asset class they were selected to represent. The fund is subject to the same risks as the underlying funds in which it invests: Stocks and bonds can decline due to adverse issuer, market, regulatory, or economic developments; foreign investing, especially in emerging markets, has additional risks, such as currency and market volatility and political and social instability; the securities of small-capitalization companies are subject to higher volatility than larger, more established companies; and high-yield bonds are subject to additional risks, such as increased risk of default. Fixed-income investments are subject to interest-rate and credit risk; their value will normally decline as interest rates rise or if an issuer is unable or unwilling to make principal or interest payments. Please see the funds' prospectuses for additional risks. This material is not intended to be, nor shall it be interpreted or construed as, a recommendation or providing advice, impartial or otherwise. John Hancock Investment Management and its representatives and affiliates may receive compensation derived from the sale of and/or from any investment made in its products and services.

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