Advisors have choices in terms of how they deploy alternatives in clients’ portfolios. Most often they hold mutual funds: The average advisor using alternatives invests 41% of his alternative assets through mutual funds, and nearly 1 in 10 advisors invests in alternatives only through mutual funds. Among insurance brokers, more than half of the allocations to alternatives are through mutual funds.
Advisors’ concerns about the asset class’ lack of liquidity suggest that there may be room for growth in liquid alternatives. As advisors become more comfortable with these products, they may expand their allocations even further.
Exchange-traded funds are used half as frequently as mutual funds: The average advisor investing in alternatives allocates 20% of his alternative assets to ETFs. Separately managed accounts, unregistered funds and limited partnerships, and closed-end funds are used far less frequently. However, most advisors who invest in alternatives use multiple types of products.