By Spencer Jakab

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Like airlines or fancy hotels, Wall Street has long had a platinum elite membership tier off-limits to the hoi polloi. But is it really worth the money?

Now that the velvet rope is being lifted for the middle class to invest their retirement money into private equity and credit funds, the answer mostly seems to be "no." They're costly, opaque and had their heyday when interest rates were super low.

Other alternative investments might be worth considering, though. Mutual funds called "liquid alts" that were supposed to mimic hedge funds boomed for a while, but were expensive and somewhat illiquid. The last few years have seen the launch of cheaper exchange-traded funds that can be easily bought and sold. They could offer better outcomes at lower cost.

The main appeal of alternatives isn't necessarily that these investments will do better: Most people own bonds knowing they will earn less in the long run, but make it easier to sleep at night. The fact that alternatives have low correlation with more traditional investments is the big selling point for sophisticated institutions like college endowments.

It also isn't a bad feature for ordinary retirement savers who often aren't as hedged as they believe. Take 2022, which was the worst year for a 60/40 stock-and-bond portfolio since the Great Depression.

A managed-futures strategy ETF from asset manager DBi returned 22% that year. A similar fund from Simplify Asset Management was only launched that March but gained 10%. The two have expense ratios of 0.85% and 0.75%, respectively-a bit more than the average actively managed stock fund.

Compared with actual hedge funds, though, they are like driving a Toyota rather than a similar-size Lexus. Andrew Beer, DBi's co-founder, explains that the ETF targets fewer markets and aims to deliver about 90% of the "pre-fee" return of a similar hedge-fund strategy. Awkwardly for hedge funds, its lower cost and complexity have resulted in better returns lately.

Unlimited Funds, co-founded by Bob Elliott, a former executive at hedge-fund giant Bridgewater, also seeks to democratize the once-exclusive category. A fund it launched three years ago reproduces the strategies of Elliott's former industry in one package under the intuitive ticker symbol HFND. It has a 0.95% expense ratio.

It is difficult to say how many bells and whistles are ideal since complexity equals cost. Managed futures are already a tough sell: An index of trend-following funds has struggled for much of this year.

Like gold or real estate, hedge fund-like ETFs finally seem cheap and liquid enough that sprinkling a small amount into your portfolio makes sense. The jury is still out for the other alternatives that may soon be headed for your 401(k).

This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).

(END) Dow Jones Newswires

November 06, 2025 07:08 ET (12:08 GMT)

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