Given the increasingly unpredictable behavior of assets, the traditional 60/40 portfolio is no longer considered a reliably conservative approach for providing risk-adjusted returns for clients.
The conventional 60/40 investment portfolio, a cornerstone of Modern Portfolio Theory since the 1950s, allocates 60% to equities for growth, and 40% to bonds for stability. However, increasing correlation between stocks and bonds in recent years has challenged the 60/40 portfolio and increased the need for diversification via other asset classes.
Notably, the positive correlation between stocks and bonds has persisted for over 700 days as of the end of March, according to State Street Global Advisors, Bloomberg Finance, L.P., MSCI.
More Advisors Are Bolstering Client Portfolios With Alternatives
As advisors search for ways to enhance portfolios in the current environment, alternative investments are gaining traction.
Alternatives, a broad asset class including digital assets and options strategies, has many uses in portfolios. Some advisors are using alternatives solely to generate alpha, while others are using alternatives for risk mitigation or hedging, according to State Street Global Advisors’ ETFs in Focus: Risk Management Attitudes & Behaviors.
Notably, the report shows the top risk management strategy used by advisors is the incorporation of alternatives, with half of financial advisors allocating to alternative investments/strategies to manage portfolio risk.
Furthermore, 82% of advisors surveyed by State Street Global Advisors Research Center believe alternative investments provide effective downside protection during periods of market volatility.
Advisors broadly recognize the value of alternatives, particularly for diversification and downside protection. However, challenges such as product complexity, limited client understanding, and valuation/reporting concerns create meaningful friction, according to the ETFs in Focus Study.
Some notable trends emerge when looking at who is using alternatives in portfolios. Millennials, Gen X, and boomers are equally as likely to have cash, stocks, mutual funds, and bonds in their investment portfolios. However, a wide gap emerges when looking at alternatives. Millennials and Gen X are more likely to allocate to alternative investments (24% and 17%, respectively) than boomers (5%), according to the study.
ETFs Have Democratized Access to Alternative Investments, Creating Opportunity for Advisors
Alternative investments can provide diversification, hedging, and return-enhancing potential. However, alternatives have historically been reserved for institutional investors, as barriers to access were too high for individual investors. This is quickly changing.
Alternative ETFs, which package exposures like commodities and digital assets into a more accessible investment wrapper, have experienced record-breaking adoption in the past year, according to State Street Global Advisors’ ETF Impact Report 2025-2026.
ETFs are playing a significant role in democratizing access to alternative investments, as innovative products continue to evolve the alternatives landscape. 80% of advisors surveyed by State Street Global Advisors say ETFs make alternative investments more accessible to portfolios.
Meanwhile, 51% of investors familiar with ETFs say ETFs provide an efficient, cost-effective way to invest in alternatives. It’s worth noting that investors with more than $250,000 in assets are especially receptive to using ETFs for alternative exposure, according to the ETF Impact Report.
Despite positive investor sentiment and record flows into alternative ETFs in the past year, alternative ETFs only make up about 2% of all ETF assets as of February 28, according to Morningstar.
Alternative ETF adoption is expected to continue to grow, as more investors become comfortable adding nontraditional asset classes to portfolios.
Half of advisors are currently using alternatives, and 79% of advisors plan to increase their allocation to alternative ETF strategies to some degree over the next 12–18 months, according to the ETFs in Focus Study. This means alternative ETFs could be a mainstream portfolio component by 2026.
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