Financial Advisers Sour Slightly On Alternatives

Oct 30 2007 | 12:56pm ET

Financial advisers are predicting that traditional investment products will begin to push back against alternative investments in the next few years after a long retreat. While 41% of advisers enjoyed double-digit growth in alternative investments this year—compared to 57% last year—there is declining optimism about the industry’s prospects and some of its newer, much-ballyhooed offerings, according to a new study by Morningstar and Research magazine.

Just 44% of advisers described themselves as bullish on alternatives, a sharp drop from the 65% of enthusiastic advisers last year. And 67% say traditional investment products will reassert themselves over the next five years at the expense of alternatives. What’s more, given the choice, advisers say that alternative strategies available through such traditional means as mutual funds, exchange-traded funds and managed futures are the future for their businesses.

“The most significant shift from last year’s survey results was that advisers seem to embrace alternative-investment strategies used in more familiar vehicles like mutual funds rather than alternative investments themselves,” Morningstar’s Steve Deutsch said. “Advisers want to offer clients access to desirable investment strategies but with the proven managers and liquidity of more traditional vehicles. Yet while advisers and their clients are more leery of alternatives, most likely because of recent market events, they’re still steadily adopting them.”

By contrast, advisers and their clients are not embracing the myriad 130/30 strategies hitting the market. Some 80% of advisers said they were not enthusiastic about 130/30 funds, and 82% have no clients who have even asked about them.

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