A new survey by Barron’s and market research firm Morningstar has revealed some slippage between how financial advisors and large institutions view alternative investments, officials say.
“Financial advisors are increasingly enthusiastic about alternatives just as institutions are becoming more cautious,” says Josh Charlson, chartered financial analyst (CFA), director of manager research for alternative strategies at Morningstar, in a statement. “Advisors have a far wider range of liquid products to choose from than in the past, while institutions have become less enamored because of the high fees and poor transparency of traditional hedge funds.”
“Advisors and institutional investors both expressed continued enthusiasm for multi-alternative, managed futures, and long-short equity mutual fund strategies, which may strengthen demand for these categories in the future,” Charlson adds. “Those same categories experienced healthy growth in 2014, while asset flows into overall alternative mutual fund strategies decelerated slightly last year.”
The results come from the ninth annual national survey undertaken by Barron’s and Morningstar last spring, which polled 149 institutional investors and 233 financial advisors, officials say.
Some highlights from the survey include:
- Sixty-three percent of advisors say they will allocate more than 11 percent of assets to alternatives over the next five years, compared with 39 percent who expressed that level of commitment in 2013;
- The number of institutional investors that expected to allocate more than 25 percent to alternatives declined from 31 percent to 22 percent however;
- Forty-five percent of institutions stated that alternatives were “somewhat less important” or “much less important” than traditional investments, as compared with 28 percent the previous year. Advisors appeared to hold similar convictions compared with 2013, with approximately 31 percent still indicating that alternative investments are “much more important” or “somewhat more important” than traditional investments, compared with 27 percent in 2013;
- Multi-strategy funds were the top picks for both advisors and institutions, consistent with last year’s survey. Approximately 22 percent of institutional investors cited the category as their fastest-growing alternative strategy over the past five years, while 14 percent of financial advisors have seen multi-strategy funds grow the fastest as a percentage of client’s alternative allocation in the same period.
- At least half of the advisors and institutional investors who responded to the survey cited high fees as the main barrier to investing in alternatives.
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