Downers Grove, Ill.,
June 23, 2015 /PRNewswire/ -- Amid
the growing availability and adoption of alternative investments
through mutual funds and ETFs, advisors need help breaking through
the language barriers to work effectively with clients to
understand their investment choices and the potential benefits of a
well-diversified portfolio more than ever before. According
to a new year-long study titled, The Power of
Alternatives from Invesco, a leading global investment
management firm, and Maslansky + Partners, a research-driven
language strategy firm, nearly eight in ten investors (77%) would
rather invest in, "alternative mutual funds that are bought and
sold like any other fund" than, "liquid alternatives"
(23%).
"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," said 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%) 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%),
Unconstrained Equity Funds (23%), Hedge Funds (20%), Arbitrage
Strategies (19%) and Derivatives (17%).
"Advisors should lead with the known and not with the new in
helping investors to understand investment strategies," added
West. "Our research found that nearly 8 in 10 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."
Investors Like "Complements"
When asked what type of new investments they would rather invest
in, 73% of investors selected those that complement the investments
already in their portfolio and just 27% 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," said
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."
Other key findings from The Power of Alternatives study
include:
Investor-friendly definitions work better when discussing
alternative strategies:
- When asked which phrase best describes an investment that does
not rise and fall with the markets, just 18% selected the
often-used phrase, "non-correlated" while the majority (59%)
preferred, "behaves independently"; and
- Almost two-thirds (64%) of investors would rather invest in,
"funds that focus on more consistent returns," while 25% preferred,
"equity funds that give up a little on the upside to get more
protection on the downside," and just 11% selected the industry
label, "long-short equity funds."
Advisors need to explain how they select alternative
investment managers; investors prefer management teams with a long
track record over brand and AUM:
- Seventy-one percent (71%) of investors preferred an alternative
fund managed by a team, "with a long track record in alternatives"
over one that is, "well-known" (16%) or "that has over $900 million under management" (13%).
The Not-Top Ten List of Phrases
Based on the extensive, year-long research conducted around
The Power of Alternatives study, Invesco Consulting
developed the following list of toxic phrases to avoid when talking
with clients about alternative investments:
- "Derivatives"
- "Future-proof your portfolio"
- "Smooth equity returns"
- "Immediately allocate 20% of your portfolio to
alternatives"
- "Non-traditional investments"
- "Strategies usually associated with hedge funds"
- "We can predict that rates will rise in the future"
- "These are portfolio managers that I have carefully
selected"
- "Arbitrage"
- "Satellite"
About The Power of Alternatives Study
With the goal of finding the language that works when talking to
clients about alternative investments, Invesco Consulting teamed up
with Maslansky + Partners in a year-long study that included
advisor interviews, three focus group dial sessions and a national
survey of 800 investors.
About Invesco Consulting
Invesco Consulting (I*C), wholly owned by Invesco, specializes
in unique and creative consulting programs for financial
professionals with skills in communications, practice management,
high net worth programs, and retirement strategies.
About Invesco Ltd.
Invesco Ltd. is a leading independent global investment
management firm, dedicated to helping investors worldwide achieve
their financial objectives. By delivering the combined power of our
distinctive investment management capabilities, Invesco provides a
wide range of investment strategies and vehicles to our clients
around the world. Operating in more than 20 countries, the firm is
listed on the New York Stock Exchange under the symbol IVZ.
Additional information is available at www.invesco.com.
Invesco Distributors, Inc. is the US distributor for Invesco
Ltd. It is a wholly-owned, indirect subsidiary of Invesco
Ltd.
NOT FDIC INSURED, MAY LOSE VALUE, OFFER NO BANK
GUARANTEE
Before investing, investors should carefully read the
prospectus and/or summary prospectus and carefully consider the
investment objectives, risks, charges and expenses. For this and
more complete information about the fund(s), investors should ask
their advisors for a prospectus/summary prospectus or visit
invesco.com/fundprospectus.
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SOURCE Invesco