We have spent quite a bit of time in our previous communications discussing robo-advisors and the active versus passive debate. In the process, it seems we’ve been neglecting another important investment trend, the acceleration of alternatives into mainstream investing.
Research published by Deutsche Bank in December, 2014 put growth of liquid mutual fund alternatives in the U.S. since 2008 at 38%, versus 9% for mutual funds overall. According to the ICI, assets in alternative strategies mutual funds reached $170 billion at year-end 2014, nearly triple that from five years earlier ($58 billion in 2009). The retail audience represents a large and relatively untapped potential pool of money for alt managers.
The move downstream into more retail segments has been facilitated by the growth in “liquid” alternatives, or alternative strategies packaged into a mutual fund or ETF form. There are some drawbacks and restrictions involved in a more liquid form of alternatives, and some alternative strategies aren’t really adaptable to a more liquid vehicle. For those that can be, though, liquid alts represent a more transparent, lower cost and lower minimum way for retail investors to access strategies that previously had been unavailable to them.
While we can debate whether the broader use of alternatives is a good thing or a bad thing, it’s safe to say that this trend shows no signs of slowing down. For those firms that are considering offering liquid alternatives to retail segments, we believe that educative communication must be an integral component of any program. Alternatives represent an asset class with which investors, and, in some cases, advisors, may not be familiar. A robust marketing communications program, using multiple touchpoints and media, should help to educate your audience on what alternatives are and the role they play in a diversified and risk sensitive portfolio. This can significantly increase the knowledge and comfort level of your clients and prospects, and the overall effectiveness of sales and marketing efforts.