Advisors To Increase Portfolio Allocations To Alternative Investments
By Cyril Tuohy
A Jefferson National Life survey of Registered Investment Advisors (RIAs) and fee-based advisors has found that nearly two thirds (64 percent) have increased their use of alternative investments over the past five years, and that more than one in two (55 percent) say they will increase their allocation to those investments in the next five years.
Nearly three quarters (73 percent) of advisors said they use alternative investments to manage volatility, although these investments are considered “tax inefficient” because they generate ordinary income or short-term capital gains and are taxed at higher rates, the survey also found.
A total of 76 percent of advisors said they would consider increasing the use of alternative investments if they could access them in a low-cost, tax-deferred account, the survey also found. The use of “tactical management” strategies — as opposed to buy-and-hold approaches — remains strong, with 61 percent of advisors saying they would likely employ such a strategy.
The survey also found that 71 percent of respondents are considering using a low-cost tax deferred account as more than 90 percent of survey respondents report that their clients are concerned about the rise in capital gains taxes.
Laurence Greenberg, president of Jefferson National, said concerns over the federal budget stalemate in Washington had increased the volatility of clients’ portfolios, leading advisors to turn to alternative investments.
Alternative investments, generally defined as investments other than stocks, bonds and cash, include precious metals, real estate, currency, private equity and even carbon credits. For retail investors and advisors, alternative investments are becoming more accessible through mutual funds and other mass market investment products.
Because such investments traditionally are more volatile than stocks and bonds, and are more illiquid or can’t be sold as easily, they entail more risk on the part of investors. With interest rates so low, advisors are looking for higher yields from their clients’ fixed-income portfolios; hence the interest in alternative investments.
The Jefferson National findings echo the results of a separate survey released last month by mutual fund analytics firm Strategic Insight that found that assets in alternative or “alt” mutual fund investment could double in the next five years to $490 billion, particularly as “liquid alternatives” find their way into investment portfolios.
Jefferson National’s survey results were compiled from approximately 400 online responses from RIAs and fee-based advisors between Sept. 18 to Oct. 3, Jefferson said. The margin of error was plus or minus 5 percentage points.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].
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