If you could build your own mutual fund, what would it include?
Andrew Rogers heads a firm that allows advisors to do just that. The CEO of Gemini Fund Services says it helps with all aspects of starting a pooled investment product as well as converting existing funds.
Rogers is seeing three areas of growth, all involving alternative investments. The first is a big uptick in interest in “the hedge fund to mutual fund conversion,” particularly with so-called multi-strategy products.
“The JOBS Act now allows hedge funds to advertise,” he notes. “This is ultimately, I think, a good thing because they can now promote their performance, and advisors can show clients how well certain strategies that they now have access to are performing.”
The second area of growth involves the ongoing (and increasingly desperate) search for yield with minimal accompanying interest-rate risk. It’s driving interest in hedged fixed-income, long/short fixed-income and REIT and real estate products, he adds.
“I hesitate to call any of these alternative products or strategies, because this type of hedging is more and more the way it’s being done with mutual funds,” Rogers argues. “They will be more active. The traditional long equity will be more in ETFs. Indeed, we’ve seen that already.”
He specifically mentions the difference between hedged and tactical products, which he believes too many advisors use interchangeably.
“Hedged products employ a continuous overlay to protect against downside risk. Tactical, on the other hand, really means it changes with the market as conditions warrant. It doesn’t have that constant overlay like hedging.”
The last major area of growth in the fund space is in variable annuities, Rogers concludes.
“As tax rates rise, more interest is once again in VAs. It’s a brand new market for alternative strategies, and the VA market is still larger than the ETF market, although the latter seems to get more attention.”