"Alternative Investments": Introduction

C is correct. Cash and other short-term liquid investments would not generally be considered alternative investments. Alternative investments fall outside of the definition of long-only publicly traded investments in stocks, bonds, and cash (often referred to as traditional investments). In other words, these investments are alternatives to long-only positions in stocks, bonds, and cash. 

A is incorrect because the category “collectibles” would include tangible assets such as fine wine, art, antique furniture, and automobiles. 

B is incorrect because the category “infrastructure” would include capital intensive, long-lived, real assets, such as roads, dams, and schools.

A is correct. Many categories of alternative assets have low liquidity because of the fund structures used (e.g., limited partnerships for hedge funds and private equity) or high transactions costs for underlying assets (e.g., real estate). Alternative assets have generally had high downside risks. However, low correlations with traditional asset classes suggest strong diversifying potential, and high returns result in relatively strong Sharpe ratios (high risk-adjusted returns). 

B is incorrect because many alternative investments have exhibited high downside risks. 

C is incorrect because many alternative investments have exhibited strong risk-adjusted returns and low correlations with traditional asset classes.