Alternatives attractive amid market volatility

Increased market volatility is driving more financial advisers toward alternative investments and a more active approach to investing, a new survey from Jefferson National Life Insurance Co. has found.

The survey of 500 advisers, conducted Aug. 23, found that 68% of the respondents have increased their use of alternative investments, with 22% saying that use has “increased substantially” over the past five years.

That trend is likely to continue, as 67% of the respondents said that their allocation to alternative investments will increase.

Nearly two-thirds of the survey respondents expect alternative investments to become more important than traditional investments.

The focus on alternatives is directly linked to recent stock market volatility, said Jefferson National president Laurence Greenberg.

“We’ve seen the Dow [Jones Industrial Average] and S&P [500] drop more than 10% off this year’s peaks, and advisers are preparing for the reality of ongoing volatility,” he said.

Although Mr. Greenberg isn’t suggesting a radical change in the “fundamentals of good investing,” he said that alternatives “provide advantages such as increased diversification, and [advisers] are more confident in the disciplined use of tactical asset management rather than relying only on traditional buy-and-hold.”

More than 75% of the advisers surveyed think active portfolio managers can outperform an index over the long term. Last year, 63% of the respondents said they were likely to employ a tactical management strategy.

When asked this year how they judge a portfolio manager’s skill, 49.5% of respondents said past performance is the preferred indicator.

Email Jeff Benjamin at [email protected]