Opalesque Industry Update - Morningstar, Inc. a provider of independent investment research, and Barron's, the financial magazine published by Dow Jones & Company, released highlights of their third-annual national survey examining the perception and usage of alternative investments among 151 institutions and 669 financial advisors.|
"Overall usage of alternatives continues to increase among both institutional investors and advisors, but the vehicles they're using to implement these strategies are changing," said Nadia Papagiannis, alternative investment strategist for Morningstar. "We've seen $2.7 billion flow out of the hedge funds we track through the third quarter of this year, yet $17.3 billion has flowed into alternative mutual funds. Investors seem to want the best of both worlds when they can get it—the diversification benefits of alternative strategies with the liquidity and transparency of publicly traded vehicles. And the investment industry is responding to this demand. Alternative and commodity mutual funds accounted for 14% of all funds launched in 2010 and 20% of all ETFs."
Among the major survey findings:
Current and Future Usage of Alternatives
Again this year, more than half of advisors surveyed expect to see their clients' allocations to alternatives grow by more than 10% a year over the next five years.
More than 21% of institutional investors indicated that long-short strategies represent their largest alternative allocation, and it was the strategy most commonly cited for possible future investments. Managed futures was most commonly cited by advisors as the strategy that they intend to consider for investment going forward, and it was the second most commonly cited strategy by institutional investors.
Institutional investors have adopted traditional mutual funds and ETFs to implement more liquid alternative strategies, but continue to use hedge funds to access less liquid strategies like arbitrage, corporate actions, and distressed securities. Advisors, on the other hand, are primarily using liquid investment vehicles to access all alternative strategies.
Definitions of and attitudes toward "alternatives"
Over the past three years, institutional investors have significantly changed their perception of natural resources equities. In 2008, about 80% of institutional investors surveyed considered them alternative investments, but less than 30% would put them in that category today.
Hot topic findings
There was general strong agreement among both advisors and institutional investors that commodity returns are currently being driven more by demand than fundamental valuations.
The majority of institutional investors did not receive any fee concessions in the last year, as hedge funds that survived the 2008 downturn retained pricing power.