Even investors in "conservative" allocation mutual funds lost money. Target-date mutual funds designed for people retired or planning to retire in 2000-2010 are down over 20% in one-year returns. College savings plans lost money. This is hard-earned and saved money that investors counted on to live and fund pertinent expenses.
Of course, as risk averse as everyone seems to be these days, how can we be so sure that alternative investments will go mainstream?
One sure sign of their growing acceptance-and significance-is that Morningstar has finally given them a mutual fund category. Before, Morningstar grouped mutual funds under the traditional asset classes: U.S. stocks, international stocks, taxable bonds, municipal bonds and "balanced" funds. Today, Morningstar recognizes and rates mutual funds investing in assets with "little to no correlation" with traditional stocks and bonds. This includes currency, long-short, precious metals and bear-market mutual funds.
For advisors, this is good news. Hedge funds have typically represented the biggest portion of alternative investments. But last year, many high-net-worth investors were rightly nervous about sticking with hedge funds after two Bear Stearns hedge funds collapsed due to losses on mortgage-backed securities. By contrast, mutual funds are accessible, transparent and regulated in a way that most retail investors can be comfortable with.
For now, it is mostly the smaller players leading the way. Sierra Core Retirement Fund (SIRAX), Autopilot Managed Growth (AUTOX), Palantir Fund (PALIX) and Arrow Alternative Solutions (ASFFX) are just a few of the examples of alternative products we have helped launch and that are at the forefront of this drive to bring Harvard-like results to the average retail investor, no matter the market.
In the future, I suspect it won't be long before the bigger guys catch on.
Andrew Rogers is president of Gemini Fund Services, LLC, in Hauppaguge, N.Y. Gemini provides back-office services for advisors who are launching or managing mutual funds. He has over 16 years of experience in the mutual fund industry.