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Alternative Market Briefing

Hedged mutual funds become the dominant vehicle for advisors and institutions looking at alternatives

Tuesday, June 25, 2013

Bailey McCann, Opalesque New York: A new survey out from Morningstar and Barron's shows that liquid alternatives, or hedged mutual funds are becoming the dominant vehicle for advisors and institutions looking to access hedged strategies. Morningstar and Barron’s conducted the survey in March 2013 and received responses from 235 institutions and 471 financial advisors.

Alternative mutual funds saw inflows of $19.7bn in 2012, while Morningstar estimates that among funds in its database, $7.6bn flowed out of single-strategy hedge funds. The shift has been fairly rapid. According to survey data, 61% of institutions said they used a hedge fund for long/short equities in 2010, while only 26% said they used hedge funds for long/short exposure this year. 45% of institutions said they managed long/short exposure through a hedged mutual fund up from 38% in 2010.

Institutions and advisors do see the value of hedged strategies, even if they are using mutual funds for exposure. More than 20% of institutions said they expect alternative investments to make up more than 40% of holdings over the next five years.

So far, long/short equity and nontraditional bonds are leading the pack in terms of allocations. In 2012, the long-short equity and nontraditional bond categories saw the largest alternative mutual fund flows of $6.1bn and $5.9bn, respectively. Advisors also expressed particular interest in yield-producing alternatives. They cited private real estate as their top ......................

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