No matter that hedge funds haven’t seen double-digit returns in three years; two out of three advisers polled by Morningstar still believe alternative investments will contribute to overall explosive growth for the upcoming half decade. “The financial advisory industry knew anecdotally that the state of alternative investments had shifted, but we were surprised to find that the majority of advisers expect double-digit growth in alternative assets under management every year for the next five years,” said Steve Deutsch, the research firm’s director of separate accounts and managed investments. The survey found that 67% of those polled report that 10% of their clients are already putting money in alternative investments. “The rise in usage indicates that financial advisers see alternative investments as smart financial choices for some clients, and that further transparency will help advisers and their clients gain confidence to consider adding” alternatives to portfolios. In other findings, the survey discovered:
- Investors avoided alternatives mainly because of “a lack of understanding, followed closely by a lack of liquidity and fees.”
- 28% of those polled said the main driver of growth in AI over the next half decade will be capital protected and structured products.
- 58% say addressing portfolio correlation is “the objective fueling the growth of alternative investments, followed by absolute returns with 49%.
- 70% said that hedge fund registration, whether required or voluntary is “positive.”
Investors, observers say, are still so hot on hedge funds that they don’t realize that on average they could make more money by spending less through other instruments. This year, for example, hedge funds are lagging behind the 8% returns of your typical stock mutual fund and the 12% of the Standard & Poor’s 500, and those latter two come without performance and management fees, which diminish investor gains even more. The full survey results will be reported next month, but one point worth bearing in is that there are plenty of hedge funds in specific strategies and sectors that are soaring – and the wise investor with a talented hedge fund manager will surely see many happy returns.