Good information on how to use alternative, hedge-fund-like, retail-oriented investments is hard to come by, according to industry experts, but some asset managers are hoping to change that.
For example, Rydex Investments of Rockville, Md., is ramping up its efforts to educate advisers and their clients about alternative investments.
The company recently introduced an "Essentials of Alternatives" brochure to its investor educational literature, and it is conducting adviser workshops that focus on how alternatives can be added to a portfolio to achieve true diversification.
"Most advisers have accepted by now the need to start including alternatives in portfolio asset allocation," said David Riley, director of portfolio strategies at Rydex. "The decisions they are wrestling with [have] to do with allocation."
The firm has good reason to want to educate clients about such products.
Through its mutual funds and exchange traded funds, Rydex offers exposure to real estate, precious metals, managed futures,
private equity and commodities — exposure that used to be available only though hedge funds.
DWS Investments of New York, a unit of Deutsche Asset Management Inc. of New York, is another firm that offers such investments. And like Rydex, it offers advisers educational literature and workshops.
"Most of the investment audience still thinks in traditional terms — what's available in the Morningstar style box," said Scott Frumhoff, a director and head of advanced sales at DWS. "We'll start from that, adding alternative investments."
Market volatility has resulted in an increased interest in alternatives, Mr. Frumhoff said.
Over the last year or so, DWS has seen the number of requests to give presentations on alternatives increase about 25%, he said.
It isn't surprising that firms such as Rydex and DWS are rushing to tell people about the benefits of alternative investments, said John Rekenthaler, vice president of research for Morningstar Inc. of Chicago.
"Conventional assets are pretty well covered," he said. "It's tough for other fund companies to compete for those assets."
That leaves the alternatives space, and alternatives aren't necessarily well understood, Mr. Rekenthaler said. "It's a big problem," he said.
Morningstar added an alternative broad asset class to its set of five broad asset mutual fund classes on Aug. 5 in an effort to "acknowledge" that investors should, at least, be thinking about alternatives, Mr. Rekenthaler said. But "we haven't offered the grand framework for how portfolios should be constructed," he said.
That is part of the problem, said Jeffrey Feldman, president of Rochester Financial Services, a Pittsford, N.Y., firm with $100 million in assets under management.
Despite the work of firms such as Rydex and DWS, he said he isn't sure such a framework exists.
SOME SKEPTICISM
Much of what asset managers are saying about the need for alternatives sounds like marketing meant to capitalize on the fact that markets are down, Mr. Feldman said. Over the long term, however, markets generally go up, he said.
Harold Evensky, president of Evensky & Katz Wealth Management, a Coral Gables, Fla., firm with $600 million under management, said that though retail alternative investments are interesting, he does not yet invest in such products because there may be hidden risk.
That is one reason that he said he welcomes educational efforts by Rydex and DWS.
"Intellectually, the idea of alternative investments makes all the sense in the world," Mr. Evensky said. But until he fully understands how a product works, he said he won't use it.
Such skepticism is understandable, but will likely go away as more advisers get familiar with alternative products, Mr. Riley said.
"What I try to convey is that stocks, bonds and cash work well during a bull market, but none of them work well when we're not in a bull market," he said. "You need to cast a wider net."
And by showing advisers how to cast that net, asset managers hope that they reel in investor dollars.
E-mail David Hoffman at [email protected].
