Alternative investments on the rise in retail world

Cerulli finds assets surpass $200B, more than 100 new funds launched in last two years

Apr 15, 2011 @ 3:22 pm

By Jeff Benjamin

Alternative-investment strategies are emerging as a top priority across the asset management landscape — and are also quickly gaining traction with retail investors — according to the latest research from Cerulli Associates Inc.

While mutual funds that employ alternative strategies represent just a percentage of the overall fund industry, the expansion into alternatives is seen by fund companies as a “way to differentiate,” according Cindy Zarker, head of Cerulli's retail-asset-management practice.

“Asset managers realize that many of the other [more traditional] strategies have become commoditized,” she said.

Mutual funds using alternative strategies such as long-short equities and commodities saw assets spike by 60% last year, according to Cerulli's new “Retail Alternative Products and Strategies 2011” report.

This compares with a 16% increase in assets by all other long-term mutual funds.

Cerulli estimated that 65 alternative mutual funds were launched last year, up from 45 in 2009.

Total assets in alternative mutual funds, now at $201 billion, represents just 2.6% of all assets in long-term mutual funds — but that's up from just 1.9% of total mutual find assets in 2009, according to Cerulli.

“The growth of mutual fund alternatives will depend on education,” Ms. Zarker said. “Understanding advisers' approach to portfolio construction is critical to creating value-added learning programs, and hiring experienced distribution experts with in-depth understanding of alternative investments will help managers accomplish this.”

According to the Cerulli research, 53% of the fund industry claims to offer at least one alternative strategy for mutual funds.

The most popular strategies launched last year include long-short equity, absolute return, commodities strategies and managed futures.

Ms. Zarker said 40% of the asset management firms that Cerulli is studying are considering launching an absolute-return and/or commodities-based fund. And 7% of firms already have one in development.

If the alternative-strategy buzz is getting louder, the fund industry can take some of the responsibility.

Two-thirds of the asset managers studied by Cerulli produce more white-paper research on alternative products than on traditional products, and more than half run more portfolio manager conference calls on alternatives than on traditional funds.

But despite the increased effort to educate advisers and offer products specifically for a mass market of investors, there remains some confusion over how best to use alternatives in a client's portfolio.

While much of the new information on alternatives seems to suggest that they could work to help smooth volatility and reduce risk, most advisers still view them as performance enhancement vehicles.

For example, the Cerulli research found that in a conservative portfolio, 64% of advisers recommend allocating 5% or less of their clients' assets to alternatives.

In a moderate portfolio, 82% of advisers recommend a 5% to 15% allocation to alternatives.

And in an aggressive portfolio, 73% of advisers recommend having 16% to 25% invested in alternatives.

According to Ms. Zarker, the current narrow use of alternatives among advisers underscores the need for fund companies to invest in training and education required to boost the use of alternative products.

0
Comments

What do you think?

View comments

Most watched

Events

Finding your edge from Tony Robbins

Guru Tony Robbins has helped a lot of people, but armed with his psychology Financial Advisor Josh Nelson has helped his practice soar.

Events

Finding innovation in your firm

Adam Holt of AssetMap explains how advisers understand they need to grow, but great innovation may be lurking right under your nose.

Latest news & opinion

SEC sets June 5 date for vote on Regulation Best Interest

Commission adds new item to agenda: Interpretation of broker guidance that qualifies as advice

House passes SECURE retirement bill with massive bipartisan support

The measure allows small employers to band together to offer plans and raises the RMD age. Another provision eases use of annuities in 401(k)s, which critics say goes too far

10 IBDs with the most annuity revenue

Here are the independent broker-dealers that brought in the most annuity revenue last year.

DOL sets date to propose new fiduciary rule

The regulation, expected in December, likely will be contoured to the SEC's new advice standards.

LPL expanding platform to include employee brokers

The largest IBD in the country has agreed to buy a small broker-dealer in Florida to kick off the new effort.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print