Study: Alt ETFs growing on advisers

Study: Alt ETFs growing on advisers
Advisers plan to increase their use of alternative ETFs at twice the rate of alternative mutual funds over the next two years; overall alternatives use slipping.
SEP 21, 2012
By  JKEPHART
Advisers are increasingly turning their attention to exchange-traded funds for their alternative strategies even as interest in alternatives seems to be slowing down, according to a new report by Cogent Research. The use of alternatives ETFs among advisers with $5 million or more in assets under management is expected to increase by 17% over the next two years, according to Cogent's 2012 Alternative Investment Trends report. The use of alternatives in mutual funds is only expected to increase by 9% over the same time period. The same features that drive advisers to use ETFs in traditional asset classes, like stocks, are seen as driving the preference for alternatives ETFs, said Steven Sixt, senior project director at Cogent. Those attractive features are typically lower costs, increased liquidity, and greater transparency. Long/short commodity and currency strategies were the two alternatives advisers showed the most interest in accessing through an ETF, according to the report. The preference for currency ETFs could be driven by the amount of control they give an adviser versus a currency mutual fund. “If you're going to use a currency ETF you have to have a view on which currencies you think are going to outperform,” said Nadia Papagiannis, an alternatives analyst at Morningstar Inc. “There aren't any actively managed currency ETFs or diversified currency ETFs so it's up to the adviser to pick the right currency,” she said. Multi-strategy and managed futures funds are the two strategies advisers prefer to use mutual funds to access, perhaps because of the noticeable lack of those strategies in an ETF. There's only one managed futures ETF available today, the $149 million WisdomTree Managed Futures ETF ticker:(WDTI), while there are dozens of managed futures mutual funds on the market. Ms. Papaginnis doesn't expect there to be a rash of ETF launches in those categories anytime soon. The Securities and Exchange Commission has banned the use of derivatives, which alternatives strategies use heavily, in ETFs since 2010. Until that's lifted, it's unlikely many ETF sponsors will roll out those types of alternatives strategies. Overall, Cogent found the use of alternatives falling slightly among advisers. According to Cogent, 74% of advisers with more than $5 million in assets are currently using alternatives, down from 78% last year.

Latest News

SEC Says Game Service Roblox Part of ‘Active Investigation’
SEC Says Game Service Roblox Part of ‘Active Investigation’

Short sellers previously said the company was under investigation, though Roblox denied allegations.

Musk’s DOGE descends on CFPB with intention to shut it down
Musk’s DOGE descends on CFPB with intention to shut it down

The Consumer Financial Protection Bureau is in the crosshairs of the Republican group that is widely attempting to dismantle government agencies.

Advisor fighting Finra banishment loses $17.7 million dispute with old firm
Advisor fighting Finra banishment loses $17.7 million dispute with old firm

National Securities Corp. sued the advisor in 2020, alleging breach of contract and unjust enrichment.

Job numbers, inflation leaving room for Fed to hold rates
Job numbers, inflation leaving room for Fed to hold rates

Recent data support a measured pace by the Federal Reserve for the year ahead.

Private assets remain hot despite surging stock market
Private assets remain hot despite surging stock market

Financial advisors are still adding alternatives despite the surge in publicly traded stock prices

SPONSORED Taylor Matthews on what's behind Farther's rapid growth

From 'no clients' to reshaping wealth management, Farther blends tech and trust to deliver family-office experience at scale.

SPONSORED Why wealth advisors should care about the future of federal tax policy

Blue Vault features expert strategies to harness for maximum client advantage.