Filed Under:Life Insurance, Life Planning Strategies

Cerulli: Mutual fund alternatives to grow 9 percent in 5 years

Alternative mutual fund assets are expected to double their share of total mutual fund assets in the next two years.
Alternative mutual fund assets are expected to double their share of total mutual fund assets in the next two years.

In the coming years, advisors are likely to be recommending a greater proportion of alternative mutual funds in clients’ investments, including variable life insurance and variable annuities.

That’s one conclusion to be drawn from a new Cerulli Associates survey, “Alternative Products and Strategies 2014: Identifying Opportunities in a Dynamic Investment Landscape.” The annual report, in its 5th iteration, examines the retail and institutional alternative landscape, including strategy, size, vehicle, distribution and new product innovation.

“As of year-end 2013, alternative mutual fund assets made up just 3 [percent] of total mutual fund assets, and asset managers expect this to grow to 6 [percent] by 2015,” says Cerulli Associate Director Michele Guiditta in a press statement. “Alternative assets are expected to grow with robust momentum, and double their share of total mutual fund assets in the next two years.”

The study observes that several factors are fueling the increased demand for mutual fund alternatives – investments whose prices move without much correlation to stocks and bonds. Among them: requests for the products by more than half of institutional  investors and financial advisors surveyed by Cerulli. Interest among platforms/distributors is also high.

Survey respondents predict assets will grow 9 percent in five years and 14 percent in 10 years.

“Given that current allocations [of mutual fund alternatives] are below target levels, opportunities exist for investment managers to raise assets,” the report states. “As asset managers and advisors continue their efforts to close the education gap that currently exists, Cerulli concurs that alternative assets’ share of total mutual fund assets will grow with solid momentum.”

To help growth the market for alternatives, the survey recommends that mutual fund asset managers devote more resources to the training and education of intermediaries and distributors. Asset managers should endeavor to relate the products’ objectives to investors’ portfolio goals.

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