International Equities And Funds Of Hedge Funds Preferred By US IFAs

by Phillip Morton, Investors Offshore.com

04 April 2005

The best investment opportunities over the next two years will be in international and emerging market equities, according to a recent survey of top US independent financial advisors who participated in an alternative investments forum.

Conducted by investment bank JP Morgan Asset Management, the poll canvassed the views of 125 advisors who took part in the forum hosted by the bank in New York and San Francisco, held in January 2005.

According to over 40% of the group, international and emerging market equities hold the most promise for investors in the next couple of years. By contrast only 11% believed US large cap equities would be the key to investment success.

On hedge fund strategies, 36% of the advisors thought that long/short equity strategies would yield the best returns over the next two years, versus 18.6% who favoured global macro. Relative value strategies were chosen by 7.1%.

The respondents also revealed that funds of hedge funds appear to be growing in popularity with investors. Of the 125 polled, 73% stated that their clients had invested in funds of funds over the past year while 64% invested in real estate, 44% in individual hedge funds and 26% in private equity.

However, the advisors foresaw relatively modest returns from funds of hedge funds over the course of the next three to five years, with 81% expecting returns in the region of 5% to 10%.

On the issue of future risk of investment in the alternative asset arena views were mixed. While 37% saw investment risk increasing, an equal proportion foresaw no change in the level of risk while 22% thought alternative investments would get riskier.

According to the poll, the top seven risks associated with alternative assets included: loss of capital; fund failures; underperformance relative to a return target; standard deviation of monthly returns; underperformance relative to peers; illiquidity; and lack of transparency.

"The alternative asset class is clearly an area of interest for affluent investors," noted Sharon Weinberg, head of the Institutional Advisory business for JP Morgan Funds.

"Sophisticated independent financial advisors acknowledge and are aware of risks, but are reasonably optimistic that the portfolios they construct can act independently of traditional markets and provide consistent returns," she added.

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