Investment News: “Alternatives: Key Piece of the Puzzle”
The case for traditional long-only allocations to stocks and bonds is getting weaker by the day, and that’s putting the financial advice industry, if somewhat reluctantly, on the junction of major change
And so starts an extensive front-page article in a recent issue of Investment News. The article goes on to provide a basic background of the growth of liquid alts with commentary from a number of advisors and asset managers.
Considering the current state of top-heavy equity valuations combined with bond yields that can only go up, driving prices down, “the old 60-40 stock-bond paradigm is unlikely to work the way is has for the past 50 years”
— Jason Schwarz, president of Wilshire Funds Management.
Certainly, liquid alts have not kept up with pace of a blistering hot bull-market in equities. However, as mentioned by Thomas Meyer of Meyer Capital Corp. liquid alts are intended to be a portfolio “shock absorber” during market corrections.
The limited percentage allocation to liquid alts by retail investors leaves plenty of opportunity for industry growth. Only 3 percent of the $13 trillion invested in open- and closed-end mutual funds is allocated to alternative strategies, versus 24% allocated to alternatives by institutional investors. The Chartered Alternative Investment Analyst Associate forecasts liquid alts allocations to expand to 14% of the overall mutual fund marketplace in the next 10 years.
The article also features the above, as well as several other statistics on the liquid alts landscape:
- 360% increase in liquid alt fund assets since 2008
- 1.91% average expense ratio for liquid alt funds
- 0% performance fees charged by liquid alts funds
- 14% projected average investor allocation to liquid alts by 2023
- 2% average investor allocation to liquid alternatives
- 116% increase in the number of liquid alts funds since 2008
- 24% average institutional investor allocation to alternatives
- 19-24% Goldman Sachs’ recommended allocation to liquid alts
Another interesting point brought up is that the dispersion in manager performance for liquid alts products is higher than the dispersion for traditional investment products.
The entire article can be read at InvestmentNews.com.
