Individual investors, who tend to shun alternative investment strategies, should re-examine them.
That was the contention of Franklin-Templeton officials at a news conference in Manhattan on Tuesday. Today, they added, the average institutional investor has an approximate 30 percent allocation to alternative investments, while the average retail investor has 1 percent to 5 percent of his or her portfolio in alternatives.
But Franklin-Templeton executives said that could be changing. They cited the first two years of its Franklin K-2 Alternatives Strategies Fund, a multi-strategy, multi-manager alternative fund.
“We’ve never had faster growth in a fund in our history,” said David Saunders, CEO of K2 Advisors.
These alternative investments have grown in popularity owing to their ability to provide exposure to hedge fund strategies, Franklin-Templeton officials said. These kinds of funds diversify portfolios by offering low correlation to stocks and bonds with the added benefit of daily liquidity, they added.
Saunders said that the retail investor today is “looking for diversifiers.”
But diversification can come with a hefty price tag. Franklin K-2 Alternative Strategies Fund returned 3.19 percent in its first year without sales charges. But some shares can carry a 5.75 percent maximum sales charge. And that changed a positive return to a negative one in the same period.
Still, Saunders and other managers who are working with Franklin-Templeton said sales and other charges are “competitive” given the quality of the product.
For instance, ETFs offering alternative strategies “don’t have the benefits of active management,” said Kevin O’Malley, portfolio manager of Chatham Asset Manager, one of the managers working in partnership with the Franklin K-2 Alternative Strategies Fund.
O’Malley and others argued that alternative investments are a key part of any portfolio in rocky times. When markets are stable, O’Malley added, one can easily ignore these actively managed alternative investment funds.