Alternative bond funds a rave in US investors - report

December 17
6:46 PM 2013

A report published on The Financial Times said the flow on money poured into a new bond fund class was seen increasing this year despite retail investors' concern over the possibility of interest rates rising. These bond funds were said to give managers unprecedented authority regarding its trading strategies, the report said.

Data from mutual fund research company Morningstar revealed that the assets in non-traditional bond funds have climbed 76% in the US, which was more money the investors have placed this year as compared to the money invested in the past three years.

Despite warning by regulators to investors to know more what they are buying and focus their attention to changing strategies, firms were said to be marketing bond funds heavily as they considered the financial assets a haven in case the US Federal Reserve decides to taper its quantitative easing measures.

The Financial Times noted that the trend is part of an otherwise broader trend of investors betting on alternative mutual funds. The report described the assets as funds which has the behavior of hedge funds as compared to fixed income mutual funds or traditional long-only equity.

Moningstar estimated that $51.5 billion in inflows to US non-traditional bond funds was seen since the beginning of January, which pushed assets of this fund class to reach $119.4 billion.

The finance industry's self-regulatory body, Finra, issued an alert to investors, cautioning them that these alternative funds have histories of limited performance and high costs.

"Do your homework and comparison shop. There may be other investment options to alt mutual funds that are less complicated and cost less, but still help you accomplish your financial objectives," the agency advised.

Goldman Sachs Marc Irizarry wrote, "Retail liquid alternatives are an approximately $2tn assets under management opportunity for managers, capable of generating 15-20 per cent organic growth over the next five to 10 years. Alternatives are 4 per cent of US retail assets under management, versus more than 20 per cent of institutional allocations."

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