More options make bets on alpha easier

As the mutual fund industry continues to migrate toward the alternatives arena, financial advisers might find individual fund selection among the more challenging parts of their job
OCT 10, 2011
As the mutual fund industry continues to migrate toward the alternatives arena, financial advisers might find individual fund selection among the more challenging parts of their job. That was among the topics covered last week at the alternative-investments conference. “Modern portfolio theory is not broken; it's just incomplete,” said Robert Hussey, executive vice president of Natixis Global Associates. “Until recently, advisers haven't had the vehicles they truly needed to act on modern portfolio theory,” he said. “But as the universe of alternative mutual funds grows, the challenge for advisers is going to be less about the macroeconomic issues and more about the microissue of picking the right funds and strategies.” In a panel discussion moderated by Nadia Papagiannis, Morningstar Inc.'s alternative-investment strategist, it was pointed out that alternative strategies are a growing part of the registered-mutual-fund space. “I'm a huge proponent of mutual funds and ETFs in the alternatives space,” said Robert Southard, principal at Greenrock Research. The biggest advantage of registered products over traditional alternatives such as hedge funds is liquidity, he said. With the mutual fund universe now including 250 alternative-strategy funds, the panelists agreed that there is virtually no excuse for clients' not having a significant allocation to alternative strategies. “I never go below 30% of a client's portfolio in alternatives because I want the protection,” said Richard Bregman, chief executive at MJB Asset Management LLC. Mr. Southard, who prefers allocations to alternatives of between 30% and 40%, said that the need for hedging risk is particularly significant in the fixed-income space. “Fixed income is not going to deliver like clients expect it to, and that's why a lot of it should be replaced by fixed-income alternatives,” he said. Email Jeff Benjamin at [email protected]

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