Shift on, as alt investments enter the mainstream

The rising level of investor skittishness since the 2008 financial crisis has been a boon for alternative-strategy mutual funds, according to Cerulli Associates Inc. A report out this month from Cerulli shows the number of alternative-strategy mutual funds has grown by 56% since 2008, and alternative strategies has grown by 173%. “The obvious trend is that investors woke up to the reality of what could possibly happen in the markets, and now there's more of an appetite for risk mitigation,” said Matt Pickering, a Cerulli analyst. Among the report's conclusion is that in a few short years investors are likely to be holding a lot more alternative-strategy investments in their portfolios. “Right now we're seeing portfolios where it might be customary to have 2% or 3% allocated to alternatives, but a lot of fund providers say they expect to see 20% allocated to alternatives over the next five years,” Mr. Pickering said. The general appeal of alternative strategies inside registered investment vehicles has ebbed and flowed over the years. In the late 1990s, for example, the fund industry started rolling out market neutral strategies. But many of those funds suffered from being too costly and too conservative for the risk-on appetite of a roaring bull market at that time. However, according to Mr. Pickering, the number of funds and fund assets has been on a steady rise since 2003 when there were 139 funds with total assets of $30 billion. The report, which lumped alternative strategies together with commodity funds, showed that commodity-focused funds set the pace with $7.1 billion in inflows last year. Alternative allocation funds had $4.5 billion in inflows, followed by managed futures at $4.4 billion, and currency funds at $3.3 billion.