High-net-worth investors plan to increase their exposure to alternative investments even though a large group of those investors say they lack knowledge of the sector, according to a study by MainStay Investments.
Twenty-six percent of those with more than $1 million in investable assets say they will increase their exposure to alternatives over the next five years, according to the survey. Sixty-six percent believe their exposure will remain the same.
Sixty-two percent who are investing in alternatives have increased their exposure during the past year, according to the study, which surveyed 800 investors between the ages of 40 and 65.
The study also revealed that 39 percent of those surveyed are not confident in their level of knowledge about alternatives. Financial advisors are where many investors are looking to fill that knowledge gap, with 60 percent saying advisors are their first source of information.
The study also shows that of those using alternatives, at least 22 percent of their portfolios are invested in alternatives.
For those increasing their use of alternatives, 61 percent are re-allocating from cash and money market accounts, followed by equities (44 percent) and fixed income (22 percent). The reasons cited for looking to alternatives are diversification (50 percent) and investment growth and return potential (48 percent). Sixty-percent also view protecting principal as a key role of alternatives.
Commodities are the most commonly held alternative investment (48 percent), followed by private equity (39 percent), long/short equity (36 percent), hedge funds (34 percent) and managed funds (30 percent).
The most common method for investing in alternatives is through mutual funds (65 percent), followed by ETFs (40 percent) and managed funds (38 percent).
Eighty-eight percent of investors who have used alternatives say they would recommend their use to others and 67 percent say alternatives have been a positive for their portfolios. Investors with at least $3 million in investable assets are even more enthusiastic, with 75 percent saying alternatives have been a positive for their portfolios.
“Non-traditional investments are increasingly becoming the norm for HNW investors,” says Matthew Leung, head of channel marketing strategies at MainStay Investments. “In fact, 51 percent of the investors we surveyed agree that within the next five to 10 years, alternative investments will become more mainstream and will be considered a core holding in many investment portfolios.”