In recent years, smart investors have diversified their portfolios into alternative investments such as real estate and commodities, to buoy their holdings in times of market stress. But 2008 proved to be an anomaly, with those asset classes falling right down along with stocks. The average real estate and commodity mutual fund fell 40% to 50% last year, The Wall Street Journal reports.

But some financial advisers are still holding out hope that alternatives will rebound in 2009, including Judith Shine of Shine Investment Advisory Services in Lone Tree, Colo. In 2008, she allocated about 20% of her clients’ portfolios to alternatives. Currently, she has pared that back slightly, to 15%, on the hope that real estate, commodities, hedging and other alternatives will rebound in the coming year.

Last year, about 25% of the 600 new mutual funds brought to market concentrated on alternatives, many of them exchange-traded funds that short the market. Clearly, investment firms are pulling out all the stops to keep investors’ money.

“Folks are definitely looking for strategies that can do well in sideways to difficult markets,” commented John Moninger, head of advisory services at LPL Financial, which has seen brisk sales of alternatives in the past year. Certainly, one of the strongest performers in 2008 was long-short funds, which fell only 15% in 2008. A handful, about 10%, even ended the year in positive territory.

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