Financial advisors and institutions continue to boost their interest and client assets invested in alternatives.
Nearly 65% of advisors allocated between 6% and 20% of their clients’ portfolios to alternatives, according to a recent Morningstar report, and 15% anticipated allocating more than 20% over the next five years. Only 4% of advisors said their typical client had no money in alternative investments, down from 17% in the research firm’s 2008 survey.
Plus, 56% of financial advisors say that alternatives are as important, somewhat more important or much more important than traditional assets, namely due to diversification.
Morningstar conducts its alternative-investment survey each year in cooperation with Dow Jones and Barron’s, and the most recent poll, conducted in March, included input from 471 advisors and 235 institutions.
More than 20% of institutions, compared with 17% last year, said they expected alternative investments to make up more than 40% of holdings over the next five years, while 43% allocated 10% of less to alternatives.
In addition, Morningstar reports that all seven of its alternative mutual fund categories have seen inflows over the past five years. These categories include nontraditional bonds, multi-alternative, market neutral, managed futures, long-short equity, currency and bear market.
Alternative-themed mutual funds saw inflows of $19.7 billion in 2012, while Morningstar estimates that among funds in its database, $7.6 billion flowed out of single-strategy hedge funds.
Among the five alternative categories attracting inflows, nontraditional-bond mutual funds have gathered the most assets, though long-short equity and multi-alternative strategies are also gaining momentum.
Fund firms with products in the managed-futures and multi-alternative mutual fund categories launched 22 and 17 new funds, respectively, in 2012.
Alternative ETFs have received net inflows of $41 billion since 2010, according to Morningstar.
Advisors clearly want income-producing alternatives, the research firm point out, and advisors ranked private real estate as their top strategy when planning future investments in alternatives for clients.