A whitepaper released by Investment News Research says that the popularity of AIF stems from their ability to provide diversification, risk reduction and often, enhanced returns. These portfolio-enhancing characteristics are becoming increasingly attractive in today’s uncertain world. Yet despite the benefits and growing popularity of alternatives, some advisers and clients remain reluctant to use them, it says.
Several current indicators point to potentially greater use of alternative investments over the next three years: Historically rich valuations for equities, a possible bottoming out of interest rates if not a change in their direction and investor willingness to explore new investment approaches, says the whitepaper.
Motivations Driving Product Allocations
A survey conducted among advisors by Investment News for the purpose of the whitepaper reveals that the motives behind the shift to a greater allocation to alternatives are varied.
“The primary driver appears to be a desire for increased diversification (expressed by 66% of advisers in the survey) and reduced volatility (63%). Additional benefits advisers are seeking include enhanced returns (45%), greater yields (34%), reduced interest-rate risk (20%) and a desire to mitigate the effects of inflation (10%),” says the survey.
The current landscape for alternative investments and strategies, therefore, is broad and promising.
“It is clear that financial advisers at firms of all sizes are likely to increase their use of alternatives significantly over the next three years. Primarily motivated by the need to diversify portfolios, source higher yield and decrease volatility, advisers at larger firms are likely to rely on more sophisticated alternative products and strategies for their wealthy clients, while advisers serving less wealthy clients will turn to less bespoke solutions,” says Investment News.