Appeal of alternatives overstated?

The market for alternative investments among retail investors may not be as robust as the industry anticipates, according to recent survey conducted by Keefe Bruyette & Woods Inc. In the study, which surveyed 49 distributors of retail asset management products in June and July, the New York firm found that the retail demand for alternative products is limited. It also found that distributors are less optimistic about mutual fund sales this year. Asked if they expected to use more non-traditional asset classes such as currency, long/short, real estate or private equity, 47% said no, while 20% said yes. Another 33% said yes, but only for a limited number of clients. At the same time, the number of retail investment products that incorporate alternative strategies is expected to grow, KBW reported. The study also looked at developments in the mutual fund industry. Just 13% of respondents said they expected mutual fund sales growth to be 10% or greater this year, while 27% expected growth of below 5%. Looking ahead five years, the respondents are more positive about mutual funds. Nearly 63% said they expected fund sales growth to exceed 5% per year, and 18% said they expected it to exceed 10%. Still, the expectations are below the industry estimate of an 18% growth rate. International funds and asset allocation products will continue to gain market share, according to the study. A full 45% of respondents thought sales of asset allocation funds would grow faster than those of traditional mutual funds, while 30% disagreed. And three-quarters of respondents said they expected the demand for international equity to remain relatively strong, as it has become a more important part of a client's asset allocation.