Liquid alternatives come in different flavors, but for the most part they’re designed to provide a degree of noncorrelation to traditional stocks and bonds and, in the process, help dampen portfolio volatility and provide drawdown protection when markets go south.

The first-quarter coronavirus crisis should’ve been a time when they shined, and while some categories did better than others, it was mixed bag overall. And that probably didn’t do much to boost their appeal among financial advisors who have been slow to latch on to this product category, according to a new report from Cerulli Associates.

In its “The Cerulli Edge—U.S. Monthly Product Trends ” report, the research and consulting firm noted that allocations to hedge-fund-like liquid alternative products comprise only about 1% of advisor assets under management.

“Even though the products received increased attention after the 2007- 2008 global financial crisis, they sputtered in growth around 2014,” Cerulli noted in its report. It cited high fees, product complexity and performance issues as reasons why.

Indeed, liquid alts became a darling after the financial crisis, particularly when investors saw that the Altegris 40 managed-futures index gained more than 15% in 2008 versus the 37% plunge in the S&P 500 Index. To satisfy a growing demand for managed futures and other alternative strategies, the investment management industry commenced to roll out a steady stream of liquid-alt funds across different strategies that were aimed at retail investors, and there was a buzz of excitement surrounding this burgeoning corner of the investment world.

Citing data from Morningstar Direct, the Cerulli report shows that assets have declined in eight of the nine liquid-alts mutual fund categories since 2014. Asset declines can occur from investor outflows and underperformance, and they were particularly steep in the nontraditional bond, long-short equity and long-short credit categories.

Regarding performance in this year’s first quarter, the managed-futures mutual fund category returned 0.03% versus a 20% drop in the S&P 500 Index. In other words, this strategy came through in the clutch.

That said, mutual fund assets in this strategy slumped 18% between 2014 and this year’s first quarter, according to Cerulli. Part of the problem is that many investors focus on total performance numbers and fail to take into account this category isn’t meant to beat the return on the S&P 500 on a regular basis; rather, it’s meant to provide noncorrelation and downside protection (as well as some upside).

All told, the managed-futures mutual fund category registered a five-year average annual loss of 1.47% through this year’s first quarter. That won’t excite investors, but this category had a five-year correlation to equities of 0.13, which effectively decouples it from equity returns.

A correlation of 1.00 indicates perfect correlation between two different assets, while a correlation of zero means no correlation between them and a negative correlation indicates they tend to move in opposite directions.

Elsewhere among liquid-alts mutual funds, the bear-market strategy collectively zoomed 30% in the first quarter. This strategy has a five-year correlation of negative 0.97 to equities, so it’s no surprise it throughly thumped the S&P 500 during the last quarter. On the flip side, it has significantly underperformed the S&P 500 over the five-year period as the index climbed to an all-time high.

Meanwhile, nontraditional bonds lost 7.6% in the first quarter, a huge underperformance to the Bloomberg Barclays US Aggregate Bond Index, which gained 3.2%.

As referenced above, the remaining categories provided mixed-bag returns, some of which should be viewed from a risk-adjusted perspective. As noted in the Cerulli report, liquid-alternative funds are often judged based on whether they offer downside protection, improve risk-adjusted returns and provide decreased correlation to equity or fixed-income markets. Like with any product category, not all funds are created equal.

“In-category performance dispersion of the funds is quite significant,” Cerulli said, “so when some funds struggle, others in the same category will distinguish themselves.”

The trick is finding those better-performing funds.