Though advisors are underwhelmed with alternative investments’ performance over the past five years, a recent study reports that the majority will continue recommending them to clients.
In a study sponsored by Jersey City, N.J.-based Pershing LLC, advisors said that 73 percent of their clients have some form of alternative investment in their portfolios, even though more than half of respondents acknowledge that the asset class has underperformed since the economic crisis.
Still, alternatives have grown rapidly as an asset class since then: Morningstar data indicates that alternative funds have grown from approximately $62 billion in assets at the end of 2008 to $179 billion at the end of 2013.
When asked what their recommended alternative allocation is, a slim majority (55 percent) of advisors said 6 to 15 percent, while 27 percent recommended allocations under 5 percent and 18 percent recommended allocations between 16 and 25 percent.
Seventy percent of advisors plan to stick with their current alternatives allocation recommendations this year; the majority point to alts’ usefulness in reducing volatility and diversifying portfolios.
The survey, conducted earlier this year, reached over 1,200 advisors and IRAs. It also found that:
- Fifty-six percent of respondents see value in allocating illiquid alternatives to investor portfolios.
- The principal drivers of product selection are the experience of the alternative investment manager and diversification options.
- The majority of advisors who do not currently recommend alternative investments to clients cited product expense and also disagreed about the viability and basic premise of alternative investments.