Alternative investments based on real estate, macro and relative value hedge funds are more likely to deliver excess returns for investors than other types of non-traditional strategies.

That is the main finding of research, conducted by PGIM Institutional Advisory and Solutions, into the role of the alternative sector.

Other alternatives such as funds of funds and equity hedge strategies, on average, may not contribute as much to overall portfolio performance, it concludes.

The report, which covers a 15-year period including two full market cycles, comes at a time when many alternative strategies have struggled to match, let alone outperform, the returns posted by major equity and bond markets.

PGIM said alternatives were far from homogenous and that investors needed to evaluate carefully each scheme’s market exposures and other key characteristics to derive value and alpha returns from them.

The report reviews the performance of hedge funds, private equity and real estate strategies from 2000 up to the first quarter of 2015, a period that included two major bear markets in equities.

However, it points out that the US stock market had returned more than 200% from March 2009 to the end of last year, far surpassing the gains made in most alternative strategies.

“As a result, many institutional investors are finding themselves faced with the question – why invest in alternative assets if they underperformed equities and cost significantly more than traditional strategies?” the report states.

“Many alternative strategies have time-varying, albeit significant, embedded exposure to cheaply accessible market beta.

“Investors should carefully evaluate market exposures and other key characteristics associated with a range of alternatives to craft an allocation that serves their overall investments objectives.”