For the first time since 2012, alternative investments are not the largest component of asset managers’ retail product development plans. That’s one of the findings in a new report by Cerulli Associates.
Alternative investments as an asset class appear to be giving way to multiasset-class products, or MACs.
One of the reasons for the shift is that much of the product innovation within the retail channel has come from the need to generate income, as interest rates have remained low for longer than many investors and advisors expected.
MAC products, which are designed to offer exposure to a mix of asset classes, combine assets such as cash, equity, bonds and alternative investments.
Many investment experts point out that sound long-term investing depends more on the mix of asset classes within a porftolio than on picking an individual stock, bond or fund.
When the first of the baby boomers turned 65 in 2011, demand surged for income to supplement savings and Social Security. But with interest rates so low, many advisors have looked to alternative investments to help improve portfolio yields.
In its report titled “Products and Strategies 2015: Building Innovative Product Solutions in a Complex Environment,” Cerulli Associates said that MAC investments had reached $2.2 trillion in assets at the end of last year.
Cerulli also said that nearly 80 percent of product executives surveyed said the need for income is sparking innovation in the retail channel compared with 26 percent of executives who said income was the engine of innovation in the institutional channel.
Pamela DeBolt, associate director at Cerulli, said asset managers are responding to investors who want diversification and lower-cost equity products.
With the U.S. bull market in stocks turning six years old in March, many investors now consider international equities cheaper than domestic equities.
“Retail managers are allocating more of their product development resources over the next year to international/global equity,” DeBolt said.
The Cerulli report also said that by 2018, financial advisors “anticipate aggressive investors will allocate more assets to international/global equity and fixed income and less to U.S. equity.”
Another reason for turning to global and international equities and away from alternatives as an asset class may be that advisors aren’t satisfied with the support for those alternative investments — precious metals and commodities, for example.
In a survey of 525 advisors released earlier this year, Howard Schneider, president of the consulting firm Practical Perspectives, said advisors want a clearer understanding of how alternative asset classes perform during a market cycles.
Only one out of six advisors is very satisfied with the performance of liquid alternatives and many advisors are not satisfied with the absolute or relative return achieved in the past year, Schneider’s survey found.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at email@example.com.
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