American High Net Worth Individuals (HNWIs) with over $1m to invest are increasingly looking to alternatives such as commodities over the traditional stocks and bonds, according to a recent survey of some 800 HNWIs between the ages of 40 and 65.
The survey, which was conducted by MainStay Investments, a division of New York Life Insurance Co, found that those investors who are putting their money into alternatives tend to have more than one-fifth of their portfolios in alternatives.
Of these, commodities are the most popular, accounting for almost half – 48% – of alternative investments. Private equity is also proving a popular investment, with some 39% of investors taking up that option. Long or short equity, hedge funds and managed futures are all favoured by more than 30% of American HNWI investors.
When asked why they are investing in alternatives, 60% answered that they saw it as a reliable way to protect their principal assets. This is to be expected, as the swing to alternatives is seen as a direct result of the global recession. Half of those interviewed said they were simply looking to diversify their assets, whilst 48% were attracted by the potential for growth or what they perceive as the favourable return potential.
The survey went on to ask investors from where they are reallocating funds to invest in alternatives. A majority, 61%, said they were taking the funds from cash or money market accounts; 44% said from Equities; and just 22% from fixed income.
The most popular method for investing in alternatives is through Mutual Funds; 65% of respondents said they are using this method. But 40% are using Exchange-traded Funds, while 38% are using Managed Funds.
Sixty per cent of investors said that they had learnt about alternative investments from Financial Advisers; 41% from the Internet or from Financial Websites; and 35% from Research Papers or Financial Reports.
And it is this last point, added to the fact that there is still plenty of potential for more investors to go down the alternative route, which indicates that more education on alternative investments is needed. This represents, as the report acknowledges, a “real opportunity” for money managers.
