This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Alternative Funds Enter the Mainstream

NEW YORK ( TheStreet) -- Alternative funds once represented a small niche in the mutual fund universe, but that is changing.

During the past year, inflows have totaled $25 billion into alternative mutual funds and exchange-traded funds, according to Morningstar. Now the category has $151 billion in assets and includes 540 funds.

Morningstar recently announced that it would begin tracking new categories of alternative funds, including inverse debt and managed futures. "It's clear that alternative funds are here to stay," said John Rekenthaler, vice president of research for Morningstar.

Alternative funds aim to diversify portfolios by focusing on investments that don't necessarily track stocks or bonds. The funds hold commodities or use complicated strategies, such as trading futures or selling stocks short.

In the past, many financial advisers avoided alternative funds, viewing them as expensive investments that could produce only meager results. But the downturn changed attitudes.

During 2008, market-neutral funds, which hold long and short positions, stayed in the black, outdoing the S&P 500 by 37 percentage points. Seeing the results, some advisers embraced alternatives in order to serve clients who had been traumatized by losses.

These days more advisers are demanding alternative funds, said Rick Cortez, president of distribution for Broadmark Asset Management, which manages Forward Tactical Growth (FTAGX), a long-short fund.

He said that angry clients are asking tough questions, demanding to know how advisers plan to protect portfolios if the market sinks again.

Cortez spoke at a recent conference on alternative funds that was sponsored by several fund companies, including AQR Capital Management, Eaton Vance Investment Managers, Forward Funds, and JP Morgan Funds.

Speakers at the conference said that pension funds and university endowments have long relied on alternative investments. The growth of mutual funds aimed at retail investors has only occurred in the last several years.

So far, do-it-yourself investors have been wary of the new mutual funds, but a growing number of financial advisers have been steering clients to alternative strategies.

This represents a major change. Most advisers have long been committed to traditional strategies, urging clients to hold plain-vanilla stock funds throughout downturns.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,279.74 +13.75 0.08%
S&P 500 2,010.40 -0.96 -0.05%
NASDAQ 4,579.7890 -13.6380 -0.30%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs