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Portfolio > Alternative Investments

Investors turning to alternatives

By Marlene Y. Satter

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Increasingly, high-net-worth and institutional investors are turning to alternatives, and the trend is expected to continue through the year.

That’s according to a survey from Altegris Advisors conducted at the Strategic Investment Conference, which found that 66 percent of respondents said they intended to boost their allocation to alternatives during the second half of 2015.

The top asset classes they singled out were managed futures/global macro (32 percent) and private equity (28 percent). The former were at the top of the list for 45 percent of registered investment advisors and 31 percent of private investors, while 36 percent of institutions chose private equity as their first choice.

Investor opinion is still divided as to how much of a portfolio alternatives should occupy, with 59 percent putting the allocation sweet spot between 10–25 percent and 15 percent saying it should be considerably higher, making up between 25–50 percent.

Less than a quarter think alternatives should be relegated to less than 10 percent.

Sixty-three percent of respondents said that they’re using alternatives as a complement to traditional strategies, while 17 percent are substituting them for traditional stock strategies and 15 percent use them as a hedge against market volatility.

And they’re not all that concerned with historical returns when choosing alternatives, with just 19 percent citing that as the most important factor in the selection process.

The majority (60 percent) said that clarity regarding investment philosophy/strategy is the primary consideration, with 24 percent saying lack of such clarity was a major concern for them when investing in alternatives. But the fees such investments charge do bother them, with 53 percent saying that was a concern when considering alternatives.

Investors, institutional and otherwise, seem to be turning to alternatives in lieu of target-date funds, which have failed to innovate at the same rate as other investments, according to AllianceBernstein. Their lack of diversification, static design, and lackluster returns have put investors off and sent them questing for other allocations.

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