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May 31, 2012updated 04 Apr 2017 3:39pm

Strong usage of alternative investments among institutions and financial advisors, survey

A recent survey by Morningstar, a provider of independent investment research, and Barron's, the financial magazine published by Dow Jones has revealed that there is continued strong usage of alternative investments among institutions and financial advisors, though the growth is slowing.

By Verdict Staff

The survey was conducted by Morningstar and Barron in January 2012 and it involved 264 institutions and 365 financial advisors.

Regarding the usage of alternative investments Scott Burns, director of ETF, closed-end fund, and alternative research for Morningstar remarked, "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."

According to the survey, alternative mutual funds witnessed inflows of US$23.2 billion in 2011, while US equity mutual funds registered a loss of US$84.7 billion.

However, the inflows were found to be lower than the previous years. While alternative ETF inflows for 2011 were only US$11.6 billion, the lowest level since 2006; inflows for alternative mutual funds were US$1.8 billion less than the prior year.

Further, though approximately 65% of advisors and 67% of institutions indicated alternative investments as being important or more important than traditional investments, the figures were down slightly from the last survey.

Among the institutions surveyed, 26% indicated that they planned to allocate more than a quarter of their portfolios to alternative investments, which is down from 37% in the last survey.

Meanwhile, both advisors and institutions have unanimously agreed that diversification was driving alternative investments; but added that high fees and lack of liquidity were holding them back.

Coinciding with the launch of many new liquid alternative products, the percent of advisors concerned about lack of liquidity has fallen sharply, from 60% in 2009 to 40% in the current survey.

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