Last year saw the strongest asset flows into the alternative investments
category and the largest number of fund launches on record, though the alt fervor may be slowing, according to a survey by Morningstar and Barron’s.
The study surveyed 372 institutional investors and 301 financial advisors.
Long-short equity funds led the growth, rising by more than 80 percent in 2013.
Assets in alternative, nontraditional bond funds also surged, as advisors credited a poor bond market outlook for the push to invest in alternative fixed-income strategies.
The increasing popularity in alternative mutual funds is highly concentrated. As of May, almost half of all alternative mutual fund assets were aggregated in the 10 largest funds in Morningstar’s database.
After several years of record inflows into alternative funds, Morningstar’s survey points to indicators that suggest the trend may be ready to cool down. This year, fewer advisors and institutions cited alternatives as “much more important” than traditional investments as they did in 2010.
In 2010, more than half of advisors said they expected to increase alternative asset allocation by more than 10 percent. Only 39 percent said they expect to increases allocations by as much this year.
The study found that the high fees generally associated with alternative funds might drag on their popularity going forward.
Fees were of greater concern in the advisor segment, relative to the perspectives of institutional investors.
The experience of the managers behind alternative funds trumped all other evaluation standards when advisors and institutions considered in which funds to invest.
Overall mutual fund company reputation had little bearing on how advisors and institutions value a specific alternative fund. Roughly six percent said they give such consideration to a firm’s core reputation, suggesting that, at least in the alternative space, proven managers of small funds have a chance to compete with the biggest firms.
Morningstar’s database tracks approximately 5,500 hedge funds and funds of hedge funds, and 780 alternative mutual funds and ETFs. The Chicago-based firm’s analysts cover about 70 percent of the assets invested in all alternative funds.
Originally published on BenefitsPro.com