With new data emerging showing consumers lack an understanding of alternative investments, we explore different alternative strategies investors can use to help educate their clients.
Long-Short Stock Funds Lose Their Shine (Barron’s, March 25)
For investors considering long-short mutual funds, it is important to understand how these funds work based on their long-term performance. Although, as a group, they have returned 6.7% over the past 12 months, their three-year and five-year annual average returns have been less impressive. However, the smaller expense ratios and daily liquidity offer investors some benefits.
Investor Understanding of Liquid Alternatives Remains Low (planadviser, March 09)
The author examines a new report from Cerulli Associates that suggests consumers do not understand liquid alternative investments, making it difficult for advisors to implement them successfully. Data shows assets in alternative mutual funds have declined since 2014 and “the promised diversification benefits never materialize[d].” Advisors need to find ways to show consumers these investments can bring value to their portfolios.
Closed-End Funds: Democratizing Alternative Investment Strategies (ThinkAdvisor, March 23)
Closed-end funds (CEFs) are a “less obvious but well-established option for delivering alternative investment strategies.” Advisors are able to invest in less liquid asset classes and CEFs usually provide persistent income or cash flow. “In addition, CEFs can also offer alternative investment strategies, such as the use of leverage, a combination of long/short strategies, option overlays and managed futures.”
Liquid vs. Traditional Hedge Funds and Alternatives: Accessing the Right Strategies (WealthManagement.com, March 13)
Daily liquidity requirements limit the success of hedge fund strategies that are implemented in a mutual fund structure. “Advisors must be aware of the risks involved when implementing alternative strategies via mutual funds into their clients’ portfolios.” Although some strategies can succeed in a mutual fund format, advisors need to understand the limitations when constructing a portfolio.
Creating a Balanced Portfolio Using Alternative Investments (Modest Money, March 23)
Including alternative investments in a balanced portfolio “can be very useful for hedging against risk during economic downturns.” These assets are popular because of their low correlation with traditional investments. However, alternative investments have their own set of risks. They are less liquid and are usually meant to be held for the long-term. Reporting is less regulated often requiring a more sophisticated investor with an in-depth understanding of these assets.
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