A must-read article by Morningstar (at this link) shares the results of the annual joint Morningstar/Barron’s survey of how advisors and institutions use and perceive alternative investments.
Alternative investments is a “catch-all” investment category that includes hedge funds, private equity funds, real estate partnerships, and mutual funds that seek to mimic these and other types of investments. Many alternative funds pursue strategies that are not correlated to the markets meaning that they do not track the results of the stock or bond markets and may even seek to move in the opposite direction of traditional stock and bond investments.
Morningstar’s article shared the following surprising findings:
- Even institutions find benchmarking alternatives confusing. A market benchmark is commonly selected, but what is the appropriate benchmark for a product that doesn’t aim to invest in or track the market? Some choose cash returns as measured by Treasury Bills. Others choose to benchmark against peers.
- Your company doesn’t need to be an expert in alternatives to get advisors’ attention. Surprisingly, advisors and institutions consider the pedigree and expertise of the portfolio manager but are not concerned if the company or parent organization does not have a background or focus on alternatives.
- Institutions and advisors are increasingly selecting alternative mutual funds as their preferred way to invest in alternatives. The current survey showed institutions’ preference for mutual funds at 73%, versus 57% last year, a huge jump. The article cited daily liquidity, more frequent disclosure and lower fees as some of the reasons why this might be true.
Assets in alternative mutual funds continue to grow. According to Morningstar, $50 billion flowed into alternative mutual funds in 2013. Combined assets in alternative mutual funds at year end 2013 were $286 billion, up from $41 billion in 2008, according to Lipper.
With strong asset growth and growing interest on the part of advisors and institutions, it is no surprise that there has been a proliferation of new alternative mutual funds products. Everyone seems to be vying for investors’ attention.
If your firm offers an alternative mutual fund or is planning to launch one, here are a few tips to try to break through the clutter:
- Develop useful materials that outline your process and explain your approach. Develop one-page fact sheets that include all the details about your fund including investment objective, investment returns over a variety of time periods, top holdings, fees and expenses and other key information an advisor or institution will want to know before investing.
- Create materials that demonstrate the portfolio manager’s alternatives experience. Produce a detailed bio outlining current and prior experience managing alternative investments or a publish a Q&A with the manager that illustrates the investment approach and provides examples of the team’s rich and focused experience managing in the alternatives space.
- Develop whitepapers or detailed articles on your investment approach that can help the advisor or institution do a deep dive into your process and illustrates how your team’s disciplined approach can produce the results the fund is seeking on a consistent long-term basis. Post these articles to your website and share in your e-newsletter. (Read our earlier blog about the value of content marketing.)
- Seek media exposure about the fund and its management in respected financial publications. These articles help to build your brand and provide perceived third-party recognition that your team is respected and experienced. Seek to place interviews with your managers or place value-added content or market commentary in industry publications.
- Create a blog for your managers to post regular comments on their perceptions about the market or a specific investment trend. A blog can help engage advisors and investors, demonstrate your thought process, and provide more current commentary between regular quarterly updates.
- In addition to written materials, consider conducting webinars or webcasts featuring portfolio management discussing the fund’s investment strategy and process. Invitations to webinars can be pushed out to interested parties and the event can then be captured for future viewing on your website. Access to a portfolio manager’s strategy and process in his or her own words is a very effective and a powerful tool.