Ninth Annual Alternative Investments Survey Finds Continued Strong Interest in Alternatives, Though Growth Slows as Institutions Become More Cautious

Jul 13, 2015, 10:37 ET from Morningstar, Inc.

CHICAGO, July 13, 2015 /PRNewswire/ -- Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, and Barron's, the financial magazine published by Dow Jones & Co., today released highlights of their 2014 survey examining the perception and usage of alternative investments among U.S. institutions and financial advisors.

"Financial advisors are increasingly enthusiastic about alternatives just as institutions are becoming more cautious. Advisors have a far wider range of liquid products to choose from than in the past, while institutions have become less enamored because of the high fees and poor transparency of traditional hedge funds," Josh Charlson, CFA, director of manager research for alternative strategies, said. "Advisors and institutional investors both expressed continued enthusiasm for multialternative, managed futures, and long-short equity mutual fund strategies, which may strengthen demand for these categories in the future. Those same categories experienced healthy growth in 2014, while asset flows into overall alternative mutual fund strategies decelerated slightly last year."

Morningstar and Barron's conducted the ninth annual national survey in the spring of 2015 and received responses from 149 institutional investors and 233 financial advisors. Highlights of the major trends in alternative investment usage and perception in 2014 include:

  • Sixty-three percent of advisors believe they will allocate more than 11 percent of assets to alternatives over the next five years, compared with 39 percent who expressed that level of commitment in 2013. However, institutional investors that expected to allocate more than 25 percent to alternatives declined from 31 percent to 22 percent.
  • Forty-five percent of institutions stated that alternatives were "somewhat less important" or "much less important" than traditional investments, as compared with 28 percent the previous year. Advisors appeared to hold similar convictions compared with 2013, with approximately 31 percent still indicating that alternative investments are "much more important" or "somewhat more important" than traditional investments, compared with 27 percent in 2013.
  • Multistrategy funds were the top picks for both advisors and institutions, consistent with last year's survey. Approximately 22 percent of institutional investors cited the category as their fastest-growing alternative strategy over the past five years, while 14 percent of financial advisors have seen multistrategy funds grow the fastest as a percentage of client's alternative allocation in the same period.
  • At least half of the advisors and institutional investors who responded to the survey cited high fees as the main barrier to investing in alternatives.
  • Seventy-one percent of institutions and 66 percent of financial advisors expressed either skeptical or unfavorable attitudes toward investing in nontraded real estate investment trusts.

Overview of the alternative funds industry landscape in 2014:

  • Organic growth rates among alternatives still exceeded all other asset classes, despite slowing to 12.3 percent in 2014 from 42.2 percent in 2013. The organic growth rate for the overall U.S. open-end fund industry was 2.1 percent in 2014, compared with 3.0 percent in 2013.
  • In 2014, 118 alternative mutual funds launched, compared with 89 in 2013. The multialternative category led the way with 40 fund launches, followed by 32 fund launches in the non-traditional bond category and 31 in the long-short equity category.

Highlights and commentary from the survey appeared in the July 13 issue of Barron's. To download the complete survey results, please click here. Morningstar experts will host a webinar at 1 p.m. CT on Tuesday, Aug. 11 to discuss the major findings of the survey. Click here to register for the webinar.

Morningstar provides data on approximately 186,500 open-end mutual funds, 11,300 exchange-traded product listings, and 5,000 hedge funds. Morningstar's manager research analysts qualitatively cover nearly 70 percent of mutual funds in the alternative category by assets. Research and data about alternative strategies is available in Morningstar DirectSM, the company's global investment analysis platform for institutional investors; and Morningstar OfficeSM and Morningstar® Advisor WorkstationSM, the company's portfolio analysis and investment research platforms for financial advisors.

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 products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. Morningstar provides data on approximately 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 15 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had more than $179 billion in assets under advisement and management as of March 31, 2015. The company has operations in 27 countries.

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Media Contact: Nadine Youssef, +1 312 696-6601 or nadine.youssef@morningstar.com

SOURCE Morningstar, Inc.



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