What's an alternative? Not even fund managers can agree

Everyone can agree that advisers are looking for alternatives to stocks and bonds, but there's still no consensus on which of the “alternative” mutual funds being sold are actually alternatives — not even among the funds selling them. In fact, in a survey of asset managers conducted by Cerulli Associates Inc., given a list of strategies, none of those strategies was designated as alternative by all of the respondents. “There's no black and white when it comes to alternatives,” said Cindy Erickson Zarker, a director at Cerulli Associates. Arbitrage, leveraged and absolute return achieved the greatest consensus among asset managers, with 93%, 92% and 87% of asset managers considering those to be alternatives. But each of those strategies has gotten more votes as a traditional asset class since 2008, according to the study. The differing views means there needs to be clear labeling of what products do, rather than just calling them “alternative,” Ms. Zarker said. That may be a tough sell for a firm's marketing department, though as investor demand for alternatives continues. “From a marketing perspective,” said Ms. Zarker, “there's still a cache around ‘alternatives.'” Alternative mutual funds, as defined by Morningstar Inc., have registered positive inflows of $12 billion over the past 12 months. “The concept that has emerged is that investors are looking for something different from the long-only products that cost them in 2008,” said Ruth Epstein, partner at Stradley Ronon Stevens & Young LLP. While there is still plenty of disagreement over what constitutes an alternative, firms are focusing on a few select strategies in their product development departments. More than two-thirds of asset management firms have either started developing, or are considering, global tactical asset allocation funds. Of course, only 27% of the same firms actually consider that strategy to be alternative, according to Cerulli.