Advisers debate alternative investments

Advisers may see increasing numbers of mutual fund products that include alternative-investment strategies, but there is still fear about these products and the perception of increased risk, a panel of fund managers said today at the Washington-based Investment Company Institute’s annual meeting in that city. Not all fund firms think alternative investments are suitable for the retail market. “It’s a behavioral observation that investors are still learning how to build thoughtful, stable asset allocation portfolios,” said Marc Mayer, executive vice president of AllianceBernstein LP and executive managing director of AllianceBernstein Investments Inc. of New York. “There is still quite a bit of evidence that advisers and investors are very reactive to recent returns,” he added. “These investments are subject to extremes like any other asset class.” AllianceBernstein manages about $10 billion in alternative-investment assets, but only for institutional or affluent investors. If alternative investments are part of an overall portfolio, investors need to understand that to get a benefit, they need to stick with it, Mr. Mayer said. “Over the last nine months, strong trailing returns are the primary driver of decisions,” he said. “Alternative investments are suitable for investors with surplus capital, where you are capable of taking significant risk.” The rest of the panel, however, did not agree with Mr. Mayer. “Alternative investments are not meant to replace stocks and bonds but complement them,” said Edward Egilinsky, managing director of alternative investments at Rydex Investments of Rockville, Md. “They can reduce risk of a total portfolio and enhance returns. They should be used as part of a total allocation, and not a stand-alone investment.” Alternative investments should make up 10% to 30% of an investor’s portfolio, Mr. Egilinsky said.