Alternative assets and exchange traded funds continue to draw a greater following as advisors and institutional investors turn toward other asset classes and strategies to further diversify their investment portfolios.
According to a Barron’s and Morningstar report on alternative investments, alternative funds attracted $23.2 billion in 2011, or $14.2 billion excluding nontraditional bond category, whereas U.S. equity funds lost $84.7 billion. [ETFs for ‘Alternative’ Asset Classes]
Managed futures and currency funds added $3.6 billion and $3.4 billion, respectively, in 2011, even though managed futures declined 6.9% over the year and currency funds continued lost out every year since 2008.
“Institutional investors and financial advisors have significantly expanded their alternative holdings since the 2008 crash, and continue to view alternative investments as an important part of their portfolios,” Scott Burns, director of ETF, closed-end fund, and alternative research for Morningstar, said in a press release.
Advisors and institutions note diversification as the key driver for alternative investments. However, high fees and low liquidity may be holding back any further growth in the investment area.
Nevertheless, inflows are beginning to slow, with only $11.6 billion in new alternative ETF inflows for 2011, the lowest since 2006. Alternative mutual fund inflows were $1.8 lower year-over-year.
“Growth has begun to slow, though, as investors have ramped up their allocations, and excitement may be cooling with the lackluster performance of alternatives relative to the overall market over the last few years,” Burns added.
About 65% of advisors and $67% of institutions surveyed believe alternatives are as important or more important than traditional investments, such as stocks and bonds. However, 26% of institutions, down from 37% in the last survey, state they plan to allocate more than a quarter to alternatives.
Advisors pointed to managed futures as their top pick, whereas institutions put managed futures as third most pouplar strategy, with long/short and private equity/venture capital as the top two.
In June, we are hosting an Alternative Investments Virtual Summit, which will help provide advisors with industry guidance on how alternative assets fit into an investment portfolio. The virtual conference will bring the conference experience to you at your own office, home or anywhere with Internet access as it is a virtual online experience.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.