A new report from Cerulli
affirms that, yes, alternatives continue to grow in popularity among mutual fund and ETF asset managers. But it may be some time until alternatives represent significant marketshare, analysts report.
Still, asset managers speak to the hype. One-third of asset managers in the retail channel rate alternatives as their most important initiative, with another 44 percent rating it as more important than most initiatives. Managers also predict that alternative mutual funds will make up 9.7 percent of mutual fund assets in five years and 15.8 percent in ten, compared with current 2.8 percent. Meanwhile, alternatives already hold 15.8 percent marketshare among ETFs.
"The overarching trend is that in the wake of 2008, alternatives are really starting to pick up, and the value of them in one's portfolio is beginning to be realized," said Matt Pickering
, one of the co-authors of the report. "At the same time, asset managers are feeling fire because the margins are better and they are better to offer if they can sell them. Everyone's just hopping on board and feeling the buzz."
Commodity funds by far dominated the alternatives offered by both mutual fund and especially ETF providers.
To make headway with alternatives, Pickering emphasized the importance of education. He also advised larger players to offer a "robust" lineup of different types of alternatives, explaining that "different sleeves get kind of hot and cold periodically, offering the full lineup of products will help you ride on into success." Meanwhile, mid- and small-tier managers may find branding themselves as a specialist in select strategies -- say, a particular commodity or currency -- advantageous, rather than trying to compete with the scale of larger firms.
This will help both mutual fund and ETF alternatives face some current challenges.
On the ETF side, managers may have a tougher time getting ETFs over to advisors, even though they provide the end investor with a better cost advantage, Pickering said. Advisors are generally more comfortable selling mutual funds, given that they are still familiarizing themselves with the concepts of both ETFs and alternatives.
In addition, ETF growth, while still going strong, slowed between 2009 and 2011 due to the increased competition among the largest three sponsors of alternative ETFs. BlackRock's iShares, State Street Global Advisors and Vanguard combined command 85 percent of ETF assets at year-end 2011 thanks to advantages in distribution and brand presence.
In the retirement channel, alternatives are less of a focus, with 39 percent of managers rating them as either not an initiative or less important than others.
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