Morningstar Advisor - April/May 2012 - (Page 10)

On Topic How Do You Use Alternatives? Let us know your thoughts at “We have incorporated alternatives for market volatility after the 2000 and 2008 market cycles. The ‘alternative or flexible’ funds enable us to keep the client in the market without jumping in and out of cash and trading based on fear.” Bart M. Gadlage Creative Financial Group Atlanta, GA into our discretionary model portfolios as a new source for diversifica- Quick Poll (given Feb. 27, 395 responses) 1 Have you increased or decreased your clients’ allocation to alternative investments since the 2008 financial crisis? Increased Decreased 84.1% 15.9% tion in a high-correlation era. Further, the transparency and accessibility of alternatives in open-end fund formats has broadened the opportunity set for access with clients and more favorable liquidity and expense characteristics. “We don’t necessarily think that alternatives are better suited than traditional investments, but we do think they are a good complement over longer cycles. The role of alternatives has evolved within our portfolios, given the extremely low interest-rate environment and possibility of a long period of rising rates. Lower-volatility alternative asset classes have become an important area of focus for research and allocations given forward-looking return scenarios.” Melissa Joy Center for Financial Planning, Inc. Southfield, MI “I like the idea of providing my clients access to non-correlative asset classes like alternatives. However, I am currently 2 Since the crisis, do you have more or less conviction that alternative investments are a necessary part of clients’ portfolios? Less More 19.6% 80.4% providing that access through mutual fund portfolios.” Dave Loftus Mainstreet Retirement & Investment Center Lenexa, KS 3 Have the prevalence and increased liquidity of alternative-investment vehicles affected your use of alternatives? Yes No 67.5% 32.5% “We don’t typically use alterna- tive investments in our client accounts. We feel that we can get 4 In your typical client’s portfolio, how much is allocated to alternative investments? ,10% 11%–15% 16%–20% .20% 46.1% 29.9% 14.9% 9.1% the same exposure with traditional investments, or we aren’t comfortable with the fees and lack of transparency.” Scott S. Hammond First Advisors Bar Harbor, ME “We define alternative investments as those with fund managers who have the flexibility to go anywhere they find value or opportunity. i.e., not constrained by the ‘style box’ or an associated index. With that being said, 5 What type of alternative strategy do you use most often in client portfolios: Long/short Absolute return Precious metals Managed futures Currency Private equity Commodities Other 12.7% 23.0% 16.0% 18.4% 1.6% 6.9% 3.5% 17.9% we find managers that have the ability to hedge, hold cash, short, etc. producing better annualized returns (on average) over a long period of time (five-plus years) with lower standard deviation and volatility compared to a “long only” or index offering. “This is very important for most of our clients who are retirees and have little stomach “I use alternative strategy mutual funds for 15%–20% of my clients’ portfolios. I use them for lower risk, lower volatility, and lower correlations to equity and fixed-income investments.” Bob Kleinman Kleinman Financial Services Port Washington, NY 10 Morningstar Advisor April/May 2012

Table of Contents for the Digital Edition of Morningstar Advisor - April/May 2012

Morningstar Advisor - April/May 2012
Letter From the Editor
We’re Too Smart
How Do You Use Alternatives?
Taking the Lead
How to Find Economic Moats
The Beauty of Currencies
No Clarity on Bonds
Four Picks for the Present
Investment Briefs
Performance Chasing, Evaluated
Technology’s Slim Pickings
How Much Is Enough?
The Fear Bubble
Three Traits of a Successful Long-Short Equity Manager
Why Absolute-Return Funds Fail to Deliver
An Economist’s Response to Crises
Undiscovered in Plain Sight
Untangling ETF Tax- Efficiency Myths
Central Banks Driving the Gold Rush
U.S. Industrials Could Add Some Magic to Europe-Weary Portfolios
No-Hesitation Allocation Funds
Our Favorite Mutual Funds
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
The Greatest Story Ever Told

Morningstar Advisor - April/May 2012