July 10, 2012

Use of Alternative Investments on Rise, Jackson Survey Finds

Nine out of 10 advisors expect to increase their use of alternatives over the next year

So-called “non-correlated” alternative asset classes are growing in popularity among advisors, and a new survey from Jackson National Life finds that more than nine out of 10 advisors expect to increase their use of alternative asset classes over the next year.

The results of the Elite Access Alternative Investment Survey, released on Tuesday, “showed an overwhelming increase in the expected use of alternatives to help offset market volatility and potentially improve portfolio diversification,” according to the Lansing, Mich.-based company. Advisors also expressed a growing demand for guided strategies to help leverage alternatives within client portfolios.

Among advisors who anticipate an increase, more than half said they would increase their use of alternatives by 15% or more in the next 12 months. Nearly a third will boost their use of alternatives by 20% or more. Of the small percentage of advisors who have not used alternative asset classes to date, more than 90% say they are now considering using them.

“The trend toward alternative asset classes among retail investors has been growing steadily for the past several years and this survey highlights the growing demand for new strategies,” Clifford Jack, executive vice president and head of retail for Jackson, said in a statement. “Over the last decade, markets have experienced record volatility. We’re entering a new era of diversification and alternative asset classes are becoming a significant part of that development.”

Jackson found the reason for an increased use of alternative asset classes was consistent among advisers, with nearly two-thirds citing further diversification as the primary purpose. However, the company said the practical use of alternatives was not as clear among respondents. Understanding of alternative asset classes and clarity on how to use them within client portfolios topped the list of advisor concerns. The contrast between the demand for alternatives and advisor confidence in their proper utilization highlights a specific knowledge gap for product providers to consider.

The company also said that with alternative use on the rise, guided strategies may become an important part of bridging that knowledge gap for advisors. According to those surveyed, guided strategies from product providers will play a key role in their use of alternatives. More than 95% of respondents said that guided strategies would be very or somewhat important in their construction of client portfolios. Nearly four out of five advisors said they would be more likely to use alternatives if offered within a guided strategy.

“The needs of investors are changing in today’s marketplace,” Jack said. “Portfolio allocation strategies are evolving beyond the traditional 60/40 model. As financial advisors adapt to these new strategies and rely more on alternative asset classes, product providers must offer the tools and resources they need to meet these demands. The advisors who took part in this survey made it very clear that guided strategies could play an important role in that effort.”

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