Alternative Investments Still Growing, But Slower

While alternative investments have continued to gain assets, excitement for them has diminished, which lead to slower growth in 2011.

While alternative investments have continued to gain assets, excitement for them has diminished, leading to slower growth, according to a survey by Morningstar and Barron’s.

The fourth annual Alternative Investment Survey of U.S. Instutitions and Financial Advisors revealed that the continued growth of alternatives bucks the trend in the U.S. — equity mutual funds bled $84.7 billion in 2011, while alternative mutual funds actually saw inflows of $23.2 billion.

"Institutional investors and financial advisors have significantly expanded their alternative holdings since the 2008 crash, and continue to view alternative investments as an important part of their portfolios," Scott Burns, director of ETF, closed-end fund, and alternative research for Morningstar, said.

However, Burns added that since alternatives have put forth a lackluster performance in comparison to the overall market, growth is slowing in this area. Inflows for alternative mutual funds were lower than in 2010 by $1.8 billion.

Click to enlarge

Copyright Morningstar

Roughly two-thirds of both advisors and institutions indicated that alternative investments are as important or more important than traditional investments. While over the last three years, institutions indicated a rising interest and investment in alternatives, 2011 showed a slight retreat.

Institutions are less likely to allocate a large portion of portfolios to alternative investments. A quarter of institutions plan to allocate more than a quarter of their portfolios, which is down from 37% last year.

Click to enlarge

Copyright Morningstar

According to advisors and institutions in the survey, diversification was driving alternative investments. Meanwhile, advisors cited high fees and institutions cited lack of liquidity as factors that were holding them back. Other top detractors were uncertain benefits and lack of transparency.

Read more:

Young Investors Mistakenly Put Off Financial Planning

Investors Still Unhappy with Advisors, Investment Performance