Annual Survey Finds Continued Strong Usage of Alternative Investments Among Institutions and Financial Advisors; Greater Adoption of Alternative Mutual Funds and ETFs

CHICAGO, Jan. 18, 2011 /PRNewswire/ -- Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, and Barron's, the financial magazine published by Dow Jones & Company, today 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

• More than 70% of institutions expect alternatives to account for more than 10% of their portfolios over the next five years; 37% (up from 25% last year) expect their portfolio allocation to alternatives to exceed 25%.
• 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"

• The importance of alternatives continues to increase. More than 70% of the institutions surveyed (up from 63% in 2008 and 64% in 2009) and 66% of advisors (up from 52% in 2008 and 58% in 2009) believe that alternatives will be as important or more important than traditional investments over the next five years.  
• 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

• Advisors were fairly evenly split in their opinions about the SEC's proposed Accredited Investor rule change—56% agreed and 44% disagreed with the rule change. The proposal would exclude primary residence in determining net worth, and potentially limit the access of some clients to private, less-liquid alternative investment vehicles such as hedge funds.
• 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.

Morningstar and Barron's conducted the Web-based survey in late November through early December 2010. Survey results appear in the Jan. 17 issue of Barron's and online at Barrons.com. Additional results, including charts, can be viewed online at http://global.morningstar.com/2010Alternatives.

About Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of Internet, software, and print-based products and services for individuals, financial advisors, and institutions. Morningstar provides data on approximately 370,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 4 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. The company has operations in 26 countries.

About Barron's

Barron's (www.barrons.com) is America's premier financial magazine, renowned for its market-moving stories. Published by Dow Jones & Company since 1921, it reaches an influential audience of senior corporate decision makers, institutional investors, individual investors and financial professionals. With new content available every week in print and every business day online, Barron's provides readers with a comprehensive review of the market's recent activity, coupled with in-depth, sophisticated reports on what's likely to happen in the market in the days and weeks to come. As a result, Barron's is the financial information source these powerful people rely on for market information, ideas and insights they can use to increase their professional success and enhance their personal, financial well-being.

©2011 Morningstar Inc.  All rights reserved.

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SOURCE Morningstar, Inc.