ETFs have made it much easier for individuals to invest in alternative asset classes such as commodities. Further growth of alternative ETFs could be driven by use in separately managed accounts.
“We’re definitely seeing the growth of launches of separate-account strategies that are focused on alternatives, and I think this is going to be the next wave of popular strategies,” Morningstar ETF managed-portfolio strategist Andrew Gogerty said in an InvestmentNews report. “As the [alternatives ETF]space continues to grow and deepen, there will only be more ways to use them.”
These separate accounts are being constructed and managed for advisors at the request of clients. The alternative assets help manage risk and enhance performance. [How to Diversify with Alternative ETFs]
“The last couple of years, we’ve seen increasing investor interest in more-sophisticated strategies because the market has been very choppy and driven by macroeconomic factors, and less so on fundamental factors,” Todd Rosenbluth, an ETF analyst at S&P Capital IQ, said in the article.
In the group of the 500 largest managers from the ETF separate account space, Gogerty found that the ETF portfolios have expanded 34% over the past year to more than $45 billion. [Morningstar Reveals Alternative Investments Ratings]
Precious metals ETFs account for the largest subcategory of alts ETF strategies. For instance, the SPDR Gold Shares ETF (NYSEArca: GLD), with $67 billion in assets, makes up almost half the $140 billion in alternative ETF assets. Other popular alts ETFs provide exposure to the CBOE Volatility Index, or “VIX,” and foreign currencies.
However, alternative ETF strategies have not developed far enough for use in the mainsream.
“Alternative ETFs have a long way to go before they have funds equivalent to some mutual fund strategies,” Nadia Papagiannis, director of alternative fund research at Morningstar, said in the article. “It will be a while before we get a good market-neutral or managed-futures ETF, so for those strategies where it is more difficult, the advisers will be using mutual funds that invest in alternative ETFs.”
For more information on various asset classes, visit our asset class ETFs category.
Max Chen contributed to this article.