Volatility driving more advisers to alternatives

Increased market volatility is driving more financial advisers toward alternative investments and a more active approach to investing, according to the results of a new survey from Jefferson National Life Insurance Co. The survey of 500 advisers, conducted Aug. 23, found that 68% of the respondents said they have increased their use of alternative investments, with 22% saying that use has “increased substantially” over the past five years. That trend is likely to continue, as 67% of the respondents said their allocation to alternative investments will increase. Nearly two-thirds of the survey respondents also said they expect alternative investments to become more important than traditional investments. The focus on alternatives is directly linked to the recent stock market volatility, according to Jefferson National president Laurence Greenberg. “We've seen the Dow and S&P drop more than 10% off this year's peaks, and advisers are preparing for the reality of ongoing volatility,” he said. While Mr. Greenberg is not suggesting a radical change in the “fundamentals of good investing,” he said alternatives “provide advantages such as increased diversification, and [advisers] are more confident in the disciplined use of tactical asset management rather than relying only on traditional buy-and-hold.” More than three-quarters of the advisers surveyed believe that active portfolio managers can outperform an index over the long term. In a Jefferson National survey last year, 63% of the respondents said they were likely to employ a tactical management strategy. When asked this year how they judge a portfolio manager's skill, 49.5% of the respondents said past performance was the preferred indicator.