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Alternative ETFs and Risk-Adjusted Performance

However, there is very little discernible performance difference or price direction when compared to the S&P 500 SPDR Trust (SPY). Both have three-year total returns of roughly 58%; both move in the same direction 99 times out of 100. The advocates of 130/30 strategies swear by the approach's ability to deliver excess returns for less risk, but the evidence is pretty slim... at least in the passive world of ETF indexing.

3. Credit Suisse Merger Arbitrage Index ETN (CSMA). In merger arbitrage, one is pursuing the spread between the stock price of a target company after the public announcement of its proposed acquisition and the price offered by the acquirer to pay for the targeted company's shares. If a deal goes through as anticipated, gains are probable. If a deal fails to materialize, losses may occur.

Compared to the previous "alt" assets, CSMA provides the least annualized volatility and the lowest correlation with the S&P 500 with a coefficient of 0.39. In the same vein, however, the investment may not provide much of anything of value. Over the previous three years, the profits are frighteningly slim.

For the most part, alternative ETFs may not be alternative enough. And when they are, they may not provide enough value to warrant their inclusion. That means the majority of ETF enthusiasts should stick with mainstream offerings tied to stocks, bonds, REITs and commodities. Moreover, since few of the primary asset classes will hold up in a systemic shock, you'll need to actively manage the downside risk with an approach to lowering your overall exposure.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

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