Financial advisors are defeating the diversification advantage of alternatives by focusing their clients’ money in too few funds, experts told attendees of an Insured Retirement Institute seminar Friday.
Of the over 600 alternative mutual funds, only 20 hold over half of the assets under management, said Nadia Papagiannis, alternative investment strategy director for Goldman Sachs Asset Management.
The concentration of assets and the fact these are primarily single-strategy funds shows advisors are not diversifying their alternative asset allocations, she said.
Mark Peterson, BlackRock’s investment strategy and education director, echoed her concerns.
“The funds putting up great returns are getting most of the money, but they don’t have a lot of diversification,” said Peterson.
Fees of multi-strategy alternative mutual funds range from .76 percent to 3.5 percent for I-Shares funds, Papagiannis said.
She cautioned the total fees for managed futures funds may not be included in Securities and Exchange Commission expense ratios because the ratio rules were written before the advent of alternatives.
Roughly 29 percent of institutional investor assets under management are in alternative vehicles compared to under 2 percent for retail investors.
“The average person has almost no exposure to alternatives,” said David Saunders, founding managing director of Franklin Templeton K2 Investments.
Institutional investors see alternatives as a risk reducer while retail investors view them as high risk, he said.