Close Close

Portfolio > Alternative Investments

ETFs Gaining Ground on Mutual Funds to Access Alternative Investments

Your article was successfully shared with the contacts you provided.

While financial advisors are more likely to use mutual funds than exchange-traded funds to access alternative investments, ETFs are quickly gaining ground, a new report reveals.

Cogent Research Cambridge, Mass., published this finding in a summary of results from a study, “2012 Alternative Investment Trends Report.” The survey is based on a nationally representative sample of 1,741 retail investment advisors.

The survey reveals that more than three quarters of respondents (78%) currently prefer to access alternative investments through mutual funds versus 6 in 10 (59%) who favor ETFs. But among advisors who currently access alternative assets or strategies, 29% expect to increase their use of ETFs for these purposes.

Additionally, report reveals, alternative investors who aren’t currently tapping ETFs to meet their alternative investment needs are twice as likely as mutual fund non-users to begin doing so over the next two years (17% versus 9%, respectively).

“Advisors continue to flock ETFs that access alternative investments for the same reasons they seek this vehicle in traditional asset classes: cost-efficiency, liquidity and transparency, says Steven Sixt, Cogent’s senior project director and the study’s co-author.

The report observes that while ETFs are gaining in popularity and garner nearly equal consideration for several alternative investment strategies–particularly long-short commodities, long-short currencies and long-short interest–advisors “overwhelmingly prefer” mutual funds when accessing multi-strategy/multi-alternative strategies.

Sixt also points up differences by channel and assets under management.

“While ETFs have strong momentum, mutual fund providers can better optimize their product development and communications strategies by focusing on the channels with the highest demand for alternative asset classes and where using ETFs to access [alternative investments] may be a harder sell,” he says.

Conversely, the report notes, ETF providers may find easier access to the category by attracting lighter alternative investment users and advisors with relatively smaller books of business because the preference for using mutual funds is not as great.