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Investors drawn to alternative mutual funds but not to alternative language


With the growing availability and adoption of alternative investments through mutual funds and ETFs, advisors need help breaking through language barriers to work effectively with clients to understand their investment choices.

According to a new year-long study titled ‘The Power of Alternatives’ from Invesco, and Maslansky + Partners, a research-driven language strategy firm, nearly eight in ten investors (77 per cent) would rather invest in, "alternative mutual funds that are bought and sold like any other fund" than, "liquid alternatives" (23 per cent). 
"Investors are very open to hearing about how alternatives can help them meet their goals, but this value proposition is quickly clouded by words like derivatives and arbitrage," says Scott West, Head of Invesco Consulting. "By avoiding jargon, advisors can eliminate misconceptions, improve conversations and help their clients understand how these strategies may enhance their portfolios."
The majority (65 per cent) of the 800 investors surveyed said they are comfortable investing in Mutual Funds but less than one-quarter were comfortable investing in Global Macro Funds (24 per cent), Unconstrained Equity Funds (23 per cent), Hedge Funds (20 per cent), Arbitrage Strategies (19 per cent) and Derivatives (17 per cent).
"Advisors should lead with the known and not with the new in helping investors to understand investment strategies," says West. "Our research found that nearly eight in ten investors would rather invest in alternative mutual funds bought and sold like any other fund than liquid alternatives, yet they are the same thing. This demonstrates that investors do not have a good understanding of liquid alternatives."
When asked what type of new investments they would rather invest in, 73 per cent of investors selected those that complement the investments already in their portfolio and just 27 per cent preferred those designed to replace some of the investments already in their portfolio.
"While institutions have used alternative investment strategies to achieve their goals for decades, more work needs to be done to ensure all investors understand their role in a portfolio," says Walter Davis, Alternative Investment Strategist at Invesco. "To shorten this learning curve, advisors should focus on how alternatives can help clients achieve their personal goals, how mutual funds and ETFs offer efficient access to these strategies and the role alternatives can have in complementing core portfolio holdings rather than being used satellite investments."  

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