Despite a handsome rally for U.S. stocks recently, American investors are increasingly interested in playing the field.

A recent survey conducted by MainStay Investments found a significant number of investors are opting out of traditional categories like stocks, bonds and cash. Instead, they are putting that money into commodities, hedge funds and other alternative investments.

Specifically, the MainStay survey found 22% of the typical portfolio is invested in alternative assets. Furthermore, 62% of those currently using alternatives in their portfolios have increased their exposure over the last year.

It’s not surprising why some folks are looking at alternatives. Low rates have made interest-bearing assets like bonds and savings accounts less attractive, and a five-year rally for the market since the lows of 2009 has some investors wondering when the party will stop for stocks.

Still, the relative popularity of non-traditional investments – that is, anything that is not focused on stocks, bonds or cash – was a bit unexpected to those who did the survey.

“With expectations of rising rates, investors need to be prepared,” said Rich Miller, managing director of MainStay Investments. “But the degree to which these alternatives are held did come as a bit of a surprise.”

Examples of Alternative Investments

Non-traditional assets are about finding ways to profit, but they also can be defensive tools.

In the MainStay survey, 50% of respondents said they were looking to alternative assets for diversification, and 60% said the key role of alternative investments was protecting principle – not necessarily growing it.

“It’s not just about swinging for home runs,” Miller said. “Every portfolio can get a diversification benefit and find some complimentary assets to achieve retirement goals.”

The most common alternative investments cited in the MainStay survey were commodities; of those surveyed, 48% of those holding non-traditional investments said commodities like oil, foodstuffs and metals were part of their portfolio.

An obvious example of commodity exposure would be gold, either held as physical bullion or in the form of a gold-backed fund like the popular SPDR Gold Trust. But other more sophisticated instruments may include a play on commodity prices, or funds that trade commodities.

Commodity based investments are a popular way to defend against inflation.

The next most-popular asset cited in the MainStay survey was private equity. Of those surveyed, 39% expressed exposure to private equity as part of their alternative investment strategy.

Historically private equity investments have been very difficult to share in, but the increased interest in alternative investments has come during a renaissance for private equity and venture capital in the U.S. Incubators such as AngelList and TechStars connect investors with emerging opportunities by using social media and the web, and almost every big city in America now has a network of well-heeled entrepreneurs looking to mentor – and, of course, invest in – the next generation of start-ups.

Another popular form of alternative investment is a “long/short” strategy. In the Mainstay survey, about 36% of respondents said they employ this this tactic in their portfolio.

In investing jargon, going “long” means investing with the hopes an asset will go up, while going “short” means investing where you make money when the underlying asset declines.

While betting an asset will decline sounds a bit vicious, Rich Miller of MainStay notes that this tactic has been around for ages and can be useful as part of defensive strategy.

“It gives an added set of tools to portfolio manager that can reduce risk,” Miller said.

For instance, the MainStay U.S. Equity Opportunities Fund has the ability to selectively short investments based on the market environment, he said. That way if there’s nothing attractive to the managers and they anticipate a rough road ahead for stocks, the fund can bet against the market or even hide out in cash.

“It’s all about flexibility,” Miller said.

Alternative Investing Not Just for the Rich

If these kind of tactics feel out of reach, not to worry. While the survey did focus on high net-worth individuals, experts agree that investors of all sizes are seeking out non-traditional alternatives in this market.

“Anything we see the high net worth doing, we see the less affluent doing in their own portfolio, too.” said Matt Leung, head of channel marketing strategies at MainStay Investments. “All kinds of investors are increasingly exploring alternative investments to supplement their traditional holdings of stocks and bonds.”

So how can you play this trend with just a few thousand dollars? Well, mutual funds and ETFs increasingly give you the tools to employ alternative investing strategies.

For instance, if you want to own crude oil in your portfolio to hedge against high energy prices, The United States Oil Fund is tied to West Texas Intermediate crude oil prices. This fund can be traded in most stock brokerage accounts under the ticker USO.

If you are concerned about falling stocks hurting you, consider the Wasatch Long/Short Mutual Fund, which can plug right into most IRAs. The fund has over $1.7 billion in assets and has an experienced team that has been running it since 2003.

The catch, Leung warns, is to truly do your research and understand what you’re investing in. Even if you have an expert investor who’s making the actual trades, it’s up to you to ensure they are up to the task.

“Understanding who’s managing the portfolio and their experience using those strategies is key,” Leung said. “Without the right experience and understanding, a manager could do more harm than good. It’s important for both the investor and the advisor to have a good idea of how it all fits together and why it makes sense.”

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks.

http://www.usatoday.com/story/money/personalfinance/2014/03/30/investments-bonds-cash-stocks-commodities/6665311/