WATCH OUT INVESTORS--HEDGE FUNDS WITH COMMODITIES INVESTMENTS HAVE TAKEN A BEATING!

Hedge funds and alternative investments that have invested in or are linked to commodities in particular have taken a beating. Slowing U.S. jobs growth, slowing growth in China, concerns about another global recession, and uncertainties relating to the Euro crisis, have turned commodities bulls into bears as hedge funds beat a hasty retreat from commodities for the third consecutive month, according to Businessweek ("Hedge Funds in Longest Rout Since Global Recession," by Tony C. Dreibus). Sentiment is now at its most bearish this year on copper, oil, heating oil, corn, gold and silver. Net long positions declined 26 percent in May, according to the article, citing the Commodities Futures Trading Commission. Europe, which accounts for 18 percent of worldwide copper and wheat demand, is floundering and the Euro reached a 23-month low versus the U.S. dollar on June 1st.

This reversal in commodities demand appears to be part of a larger turning against alternative investments in general. Recently, hedge funds and many other alternative investments have underperformed expectations, and institutional investors have begun to worry even more about their high fees and illiquidity.

"When there's concern about the global economy, you're not going to be rushing into commodities, and end-users are going to be more cautious about buying," said one money manager, who oversees about $170 million of assets, adding: "People are selling because they're looking for liquidity and they're nervous about the global economic outlook."

Many investors seem to sense that they have nowhere to go except U.S. Treasuries, which are yielding next to nothing. "Investors are running scared," another money manager observed, adding: "They've lost faith in equities and lost faith in anything that's so-called higher risk. The money has to go somewhere. The general comfort level with holding cash is pretty low."

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

WATCH OUT INVESTORS--"STERN ADVICE" ON ALTERNATIVE INVESTMENTS

Alternative investments can include virtually any investment that is not a traditional stock or bond, such as gold or currency to mutual funds that employ hedges, leveraged exchange traded funds, options, short-selling, derivatives and non-traded REITs ("Stern Advice-Investors pressed to go alternative," by Linda Stern, Reuters). "A majority of advisers -- 66 percent of a mix of commissioned brokers and fee-only advisers -- are inclined to employ alternative investment strategies, even for middle market clients," according to the article, citing a study released earlier this month by Natixis Global Asset Management. Financial advisers need to know that dangers lurk in the complex world of alternative investments and they must disclose these dangers to their clients.

Unfortunately, few sellers of alternatives have an in-depth understanding of these complex products and are thus unable to explain the risks to investors. Many alternative investments use derivatives and options to try to achieve their goals. It takes an expert to understand how they work. For instance, options are priced using a complex mathematical formula that won its creators a Nobel prize.

As a group, alternative investments lack a ready secondary market and therefore tend to be illiquid. Moreover, some of them (private equity, natural resource limited partnerships, and real estate) have lengthy lock-up periods during which sales are prohibited.

A major driving force behind the effort to sell alternative investments is the high fees associated with them. Hedge funds, for example, were dubbed by Warren Buffett as "manager compensation schemes." Alternatives also come with high expenses. Consequently, it takes an extraordinary return just to break even.

Some alternative investments like structured notes put all of the investor's principal at risk. Investors in so-called "100% principal protection" notes issued by Lehman Brothers lost almost all of their value after Lehman's bankruptcy. It turned out that the notes, which were sold by other firms, were really just the unsecured obligations of Lehman Brothers.

Investors should beware of the hype associated with alternative investments. They are too risky and complex for most investors.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.