Alternative mutual funds will continue to gain market-share, according to a new report from Cerulli.
The firm's research shows that alternative mutual funds will have 10 percent market share in five years and more than 15 percent in ten years.
Alec Papazian, senior analyst in Cerulli's retail asset management practice, and lead author of this research believes that the motives for launching alternative products have changed in the past year.
"Interestingly, the need to differentiate in a competitive marketplace was the leading driver in 2011, and is considered much less of a driver in today's market. We attribute this to the fact that so many managers now offer these strategies. 2011 was a record year for alternative mutual fund product development with 95 new funds being launched," he said in the release.
The new wave of alternative products have fans in the wire-house distribution channel. On average, wirehouses see allocations at only 4 percent among their advisor forces, but would like this to increase to greater than 15 percent.
Company Press Release
June 2012, Boston. Cerulli's annual examination of the retail alternatives and ETF marketplaces is newly available, and in it, Cerulli shows that asset managers expect that alternative mutual funds will comprise nearly 10% of all mutual funds within five years, and this percentage will jump to more than 15% in 10 years. Cerulli expects alternative mutual fund asset growth to continue, but due to the overall size of the fund marketplace, it may be a slow climb to reach more significant marketshare.
Cerulli Quantitative Update: ETFs and Retail Alternative Products and Strategies 2012 is a comprehensive sourcebook for asset managers currently offering alternative strategies, or contemplating new product launches. For the former, this sourcebook guides them on areas of growth, including the categories of alternatives that show the most promise. For the latter, this resource provides a roadmap for building an offering, from product development to distribution.
Cerulli's research shows that the leading driver behind managers' interest in alternatives hinges on investors' need to optimize the risk-adjusted performance of their portfolios. Another significant driver is managers' expectations regarding future capital markets returns. Volatility and uncertainty is viewed by many managers as benefiting alternative investing.
"Interestingly, the need to differentiate in a competitive marketplace was the leading driver in 2011, and is considered much less of a driver in today's market. We attribute this to the fact that so many managers now offer these strategies. 2011 was a record year for alternative mutual fund product development with 95 new funds being launched," comments Alec Papazian, senior analyst in Cerulli's retail asset management practice, and lead author of this research.
Growth is not without its challenges. Distribution access and advisor knowledge are the largest challenges facing alternative managers. Managers should be aware of the unique distribution requirements of alternative funds versus traditional funds.
However, many broker/dealers, in particular the wirehouses, appear very supportive of increasing the use of alternatives among their advisors. On average, wirehouses see allocations at only 4% among their advisor forces, but would like this to increase to greater than 15%.
"Firms that are providing superior educational materials may find that this provides an advantage within the wirehouses, which are looking for help in increasing advisor adoption," comments Matthew Pickering, analyst in Cerulli's retail practice and co-author of this research.
Cerulli views asset managers that hire alternative specialists to support the sales process as having a leg up on the firms that rely on a generalist model to sell these often complex products. "Our research shows that the majority of asset manager expect to hire in this role within the next year," continues Papazian.
"Most advisors report that asset allocation education on how to incorporate alternatives into portfolios is the most helpful method to increase their adoption of these products. Firms that have a thoughtful approach to educating advisors will see increased flows," concludes Pickering.
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