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Annual Survey Finds Continued Strong Usage of Alternative Investments Among Institutions and Financial Advisors But Growth Slowing
CHICAGO, May 29, 2012—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, and Barron’s, the financial magazine published by Dow Jones and Co., today released highlights of their fourth-annual national survey examining the perception and usage of alternative investments among institutions and financial advisors.

“Institutional investors and financial advisors have significantly expanded their alternative holdings since the 2008 crash, and continue to view alternative investments as an important part of their portfolios,” Scott Burns, director of ETF, closed-end fund, and alternative research for Morningstar, said. "Growth has begun to slow, though, as investors have ramped up their allocations, and excitement may be cooling with the lackluster performance of alternatives relative to the overall market over the last few years."

Morningstar and Barron’s conducted the survey in January 2012 and received responses from 264 institutions and 365 financial advisors. Among the major trends in alternative investment usage and perception:

Alternatives continue to gain assets, bucking the trend in U.S. equities, but growth and excitement seem to be diminishing
• Alternative mutual funds saw inflows of $23.2 billion in 2011($14.2 billion excluding the nontraditional bond category), while U.S. equity mutual funds bled $84.7 billion.
• However, inflows were lower than prior years. Alternative ETF inflows for 2011 were only $11.6 billion, the lowest level since 2006. Inflows for alternative mutual funds were $1.8 billion less than the prior year.
• Approximately 65% of advisors and 67% of institutions indicated that alternative investments are as important or more important than traditional investments, down slightly from the last survey.
• Institutions indicated rising interest and investment in alternative investments in each of the prior three surveys, but this year’s survey saw some retreat. Among the institutions surveyed, 26% indicated they plan to allocate more than a quarter of their portfolios to alternative investments, down from 37% in the last survey.

Sentiment has cooled to more established equity-based alternatives, but not to non-equity-based strategies like managed futures and currencies, despite poor performance
• Managed futures and currency mutual funds recorded inflows of $3.6 billion and $3.4 billion, respectively, in 2011, despite the fact that managed futures lost 6.9% that year, while currency funds lost money every year since 2008.
• For the second year in a row, advisors cited managed futures as the asset to which they were most likely to increase their exposure, while currency funds didn't make their top five.
• Institutions flagged managed futures as the third most popular strategy for increased allocation, while long/short equity (or debt) and private equity/venture capital were the top two strategies for increased allocation.
• While still positive, flows into market neutral and long/short equity funds—two more well-established categories—saw far lower inflows in 2011 than in 2010.

Unanimously, advisors and institutions both agreed that diversification was driving alternative investments; high fees and lack of liquidity were holding them back
• Institutions stated lack of liquidity was the greatest impediment, while advisors cited higher fees. Uncertain benefits and lack of transparency were also top detractors.
• Over the years, the percent of advisors concerned about lack of liquidity has fallen sharply, from 60% in 2009 to 40% in the most recent survey, coinciding with the launch of many new liquid alternative products.

Highlights and commentary from the survey appeared in the May 28 issue of Barron’s in the “Fund of Information” column. Additional results, including charts, can be viewed online at

About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individuals, financial advisors, and institutions. Morningstar provides data on more than 380,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 8 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its registered investment advisor subsidiaries and has more than $190 billion in assets under advisement and management as of March 31, 2012. The company has operations in 27 countries.

About Barron’s
Barron’s ( is America’s premier financial magazine, renowned for its market-moving stories. Published by Dow Jones and Co. since 1921, it reaches an influential audience of senior corporate decision makers, institutional investors, individual investors and financial professionals. With new content available every week in print and every business day online, Barron’s provides readers with a comprehensive review of the market’s recent activity, coupled with in-depth, sophisticated reports on what’s likely to happen in the market in the days and weeks to come. As a result, Barron’s is the financial information source these powerful people rely on for market information, ideas and insights they can use to increase their professional success and enhance their personal, financial well-being.

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©2012 Morningstar Inc. All rights reserved.
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