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The Markets July 13, 2015
Advisers Increasingly Embrace Alternatives
Financial
advisers are increasingly embracing alternative investments, a survey by
Morningstar and Barron’s finds.
Reported by Lee Barney
Sixty-three percent of advisers surveyed by Morningstar and Barron’s financial magazine say they will allocate more than 11% of assets
to alternatives in the next five years, up from 39% who expressed that level of
commitment in 2013.
Institutional investors, on the other hand, are becoming slightly wary of
alternative investments, citing high fees and poor transparency; 22% of
institutional investors plan to allocate more than 25% of their portfolios to
alternatives, down from 31% in 2013.
Additionally, 45% of institutions said that alternatives were “somewhat less
important” or “much less important” than traditional investments, up from 28%
in 2013. Nearly one-third of advisers (31%) said that alternative investments
are “much more important” or “somewhat more important” than traditional
investments, up from 27% in 2013.
The most popular alternative choice for institutions and advisers alike are
multistrategy funds, cited by 22% of institutional investors as their
fastest-growing alternative strategy and by 14% of advisers.
“Financial advisers are increasingly
enthusiastic about alternatives just as institutions are becoming more
cautious,” says Josh Charlson, director of manager research for
alternative strategies at Morningstar. “Advisers have a far wider range
of liquid products to choose from than in the past, while institutions
have become less enamored because of the high fees and poor transparency
of traditional hedge funds.”
Industry Growth
Growth rates in alternatives exceeded all other asset classes, despite slowing to 12.3% in 2014 from 42.2% in 2013. By comparison, U.S. open-end funds grew 2.1% in 2014 and 3.0% in 2013. In 2014, 118 alternative mutual funds were launched, up from 89 in 2013. The multialternative category led the way with 40 fund launches, followed by 32 launches in the non-traditional bond category and 21 in the long-short equity category.
The survey comes on the heels of a report from OppenheimerFunds stating a case for the relevance of alternatives in retirement plans to properly diversify portfolios. The survey was conducted in the spring of 2015 among 149 institutional investors and 233 financial advisers. To view the complete results of the survey, click here.