Advisors are still flocking to liquid alternative strategies.
According to a recent survey conducted by Morningstar and Barron’s, 73 percent of advisors prefer the mutual fund structure to access alternative strategies. That’s a significant increase from the 57 percent preference cited in the prior year’s survey.
Nontraditional bond funds saw the largest fund flows for 2013 and year-to-date 2014, followed by long-short equity funds and multi-alternative funds.
However, advisors claim the search for yield isn’t the main reason they’re investing in alternative fixed income products. Only 12 percent cite yield as what they value most in these funds, while 39 percent value the funds’ low correlation to traditional fixed income most highly.
Fund sponsors recognize the search for diversification and are responding appropriately.
In terms of new fund launches, multi-alternative funds, which offer exposure to multiple strategies in one account, have shown the greatest increase in recent years. From 2011 through May 2014, 279 new funds started operations and 82 of them, almost one-third, were in the multi-alternative category.
Larry Restieri, head of alternative sales for Global Third Party Distribution within Goldman Sachs Asset Management in New York, agrees that advisors are primarily using liquid alternatives for their diversification benefits vs. higher yields.
Consequently, when advisors consider adding alternatives to a client’s portfolio, Restieri says, the multi-alternative funds are a “natural entry point.” He cites the Goldman Sachs Multi-Manager Alternatives Fund (GSMMX) as an example of how these funds can provide broad diversification with one investment.
The fund opened April 30, 2013, and had net assets of $515.6 million as of June 30.
The fund’s assets are divided among seven sub-advisors with allocations to five strategies:
dynamic equity (14.6 percent of assets);