While advisors and investors have “significantly expanded” their alternative holdings since the financial turmoil of 2008, growth has started to decelerate due to the “lackluster” performance of alternatives relative to the overall market, says Scott Burns of Morningstar.
According to an annual survey from Morningstar and Barron’s, which examines perceptions and usage of alternative investments, approximately 65 per cent of advisors and 67 per cent of institutions said alternative investments were “as important” or “more important” than traditional investments.
“Growth has begun to slow, though, as investors have ramped up their allocations, and excitement may be cooling with the lackluster performance of alternatives relative to the overall market over the last few years,” said Burns, director of ETF, closed-end fund and alternative research at the firm.
While alternatives continue to acquire assets, inflows are at a lower level than in prior years. Last year alternative mutual funds logged inflows of $23.2 billion ($14.2 billion excluding the non-traditional bond category), down by $1.8 billion from 2010.
Shift in sentiment
Sentiment has "cooled to more established equity-based alternatives," but not to non-equity-based strategies such as managed futures and currencies, despite poor performance, the firm said.