Cogent Research: ETFs Gaining on Mutual Funds in Alternatives Space

CAMBRIDGE, Mass.--(BUSINESS WIRE)--While advisors are currently more likely to use mutual funds than ETFs for accessing alternatives (78% versus 59%, respectively), ETFs are quickly gaining ground. Among advisors who currently access alternative asset classes or strategies, 29% expect to increase their use of ETFs for these purposes. By contrast, just 17% plan to increase their use of mutual funds. Furthermore, alternatives investors who aren’t currently tapping ETFs to meet their alternative investment (AI) needs are twice as likely as mutual fund non-users to begin doing so over the next two years (17% versus 9%, respectively). These and other findings are included in the new 2012 Alternative Investment Trends™ report which was recently released by Cogent Research. The report is based on a nationally representative survey of 1,741 retail investment advisors.

“While ETFs have strong momentum, mutual fund providers can better optimize their product development and communications strategies by focusing on the channels with the highest demand for multi-alternative asset classes and where using ETFs to access AI may be a harder sell”

“Advisors continue to flock to ETFs that access alternative investments for the same reasons they seek this vehicle in traditional asset classes – cost efficiency, liquidity, and transparency,” says Steven Sixt, Senior Project Director and study co-author. While ETFs are gaining in popularity and garner nearly equal consideration for accessing several AI strategies, particularly long-short commodities, long-short currencies, and long-short interest, advisors overwhelmingly prefer mutual funds when accessing multi-strategy/multi-alternative strategies.

In addition to specific strategy and vehicle preferences, a number of important differences do exist by channel and AUM. “While ETFs have strong momentum, mutual fund providers can better optimize their product development and communications strategies by focusing on the channels with the highest demand for multi-alternative asset classes and where using ETFs to access AI may be a harder sell,” says Sixt. Conversely, ETF providers may find easier access to the category by attracting lighter AI users or “AI dabblers,” and advisors with relatively smaller books of business, because the preference for using mutual funds is not as great.

Regardless of the wrapper, the fight for AI assets is likely to remain very competitive as AI users continue to turn to both large asset managers and boutique providers for their investment needs – signifying the fragmented nature of the industry. Larger broad-based providers continue to be the “go to” AI managers for many advisors. However, smaller challenger brands like AQR, CNL, Virtus, Altegris, Cole, and Ivy Funds are also as likely to be top-of-mind among advisors seeking alternative investments.

About Cogent Research

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