Fear that traditional investments could underperform in 2008 has seen Intech expand the holding of alternative investments in diversified funds.

The group, which runs six diversified options, sees the possibility of lower real returns for equities, property and bonds next year.

"Global markets have entered a period of uncertainty in 2007, with increased investment downside risks, so ensuring portfolios are well diversified is paramount," Intech deputy chief investment officer and head of multi-strategy Daniel Needham said.

Intech has introduced six new alternative strategies to many of its diversified trusts in 2007, with allocations tailored for each portfolio.

It currently holds allocations of between two and 19 per cent in alternative investment strategies across the funds, the highest weighting being in the Intech Growth Trust.

"The alternative strategies such as global trading strategies and global listed infrastructure that we have introduced to our diversified trusts are specifically customised for our clients to have less dependence on the direction of equity and bond markets," Needham said.

"The exposure of the new alternative strategies to traditional markets is low in particular equities given that their purpose, apart from generating returns, is to diversify our portfolios."

According to Needham, numerous Australian diversified funds are too heavily weighted towards equity risk. 

"The addition of alternatives via fund of hedge funds, with material underlying exposure to equity markets, defeats the purpose of adding alternatives strategies to these diversified funds," he said.

The re-weighting of Intech's diversified funds was completed in November 2007.