An investment strategy is a set of rules, behaviours or procedures, designed to guide an investor's selection of an investment portfolio. Usually the strategy will be designed around the investor's risk-return trade-off: some investors will prefer to maximize expected returns by investing in risky assets, others will prefer to minimize risk.

Asset allocation is based on the theory that over various time periods different assets may be the best performing one. It is difficult to predict which asset will perform best over any given period. Thus, although it is psychologically and intellectually appealing to try to predict the "best" asset, there is a risk to doing so.

A fundamental case asset allocation is made by the fact that different asset classes offer returns that are not perfectly correlated.  This diversification reduces the overall risk in terms of the variability of returns for a given level of expected return. Therefore having a mixture of asset classes is more likely to meet the investor's wishes in terms of amount of risk and possible returns.

Academic research has painstakingly explained the importance of asset allocation and diversification.

Alternative Investment Management (as practiced by Hedge Fund Managers and Commodity Trading Advisors) seeks absolute rates of return in excess of those available from stock, bond and property investments.

Generally speaking, Alternative Investment Management employs modestly leveraged, directional, speculative trading strategies in a wide range of liquid and transparent markets. Such strategies are implemented in non-biased, bi-directional markets and may consequently profit from rising as well as falling markets. In general, the returns earned are non-correlated with traditional investments such as stocks, bonds and property.

For these reasons, Alternative Investment Management is an investment strategy that simplifies and maximises the asset allocation process and reduces the risk of investment through broad diversification.

With experience, detailed quantitative research, exhaustive systems testing, robust portfolio construction and thorough due diligence, a portfolio of such investment strategies may be constructed.

Properly managed, these portfolios can offer investors superior returns commensurate with an acceptable level of risk.