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Producing alpha over long periods of time requires keen investment insight, leadership in exploring untapped opportunities and inefficiencies, and integrating a robust risk management process that addresses concentration, illiquidity, and transparency. This paper addresses how each of these inefficiencies may be exploited to help generate alpha.

Commodity allocations in model portfolios have moved from being exotic to commonplace. The benefits being sought by such allocations typically include protection against inflation and diversification. While commodity allocations can serve both of these roles handily, the manner in which some clients implement these strategies potentially reduces the desired benefits.

Most investors believe an index-based ETF, ETN or swap will give them an experience similar to the equity markets, where an index-based product represents an unbiased view of the market portfolio, using market capitalization as weights. Unfortunately, this intuition proves misguided due to important differences in how these indexes are constructed.

The authors discuss their criteria for choosing alternative investments, the number of these investments to include in a portfolio, how to allocate strategically and when to change that allocation, and the practical challenges for implementation.

A move from one investment manager to another comes with costs that are not easy to identify but should be considered before making the switch. A transition manager can help in assessing the issues and coordinating the logistics and the execution process.

Zero economic activity, confidence and effective policymaking are likely to keep market volatility levels elevated as well as pressure risky asset prices in the near future. However, this uncertainty offers the opportunity for investors to rebalance their portfolios by taking advantage of attractive prices for risk assets.

While high yield spreads are likely to remain volatile until Europe's problems are resolved, the purge of high leveraged credits during 2008 and 2009, coupled with a lack of aggressive re-leveraging of balance sheets thereafter, should limit the severity of the next default wave absent a severe recession or systemic bank failure in Europe.

While things may very well turn out well for risky assets in the coming months, the possibility of a messy European outcome or for further political and economic turmoil in the U.S. is significant and cannot be ignored. Emerging economies, while not immune to the travails of Europe, Japan and the U.S., remain resilient and their stock markets offer good value and growth prospects.

Local currency emerging market debt funds have enjoyed robust asset growth in recent years as the investable universe has expanded and liquidity has sharply improved. This growing asset class provides diversification benefits and an attractive risk/reward profile for fixed-income and multi-asset portfolios.

Investment portfolios with diversified allocations exhibit beta spikes, which are commonly believed to be the result of increased portfolio correlation to U.S. equity. However, the fundamental mechanism driving beta to stress levels is the portfolio volatility ratio relative to equities, rather than the portfolio correlation itself.