For financial advisers looking to broaden their product menus, recent research says, international mutual funds and real estate investment trusts are the most attractive additions.
Bruce Harrington, a managing director at Cogent Research in Cambridge, Mass., said that these and other open-end mutual fund categories have the potential to gain market share within two years.
His firm's annual Advisor Product Forecast survey said 95% plan to sell international funds by the end of 2009; 66%, real estate investment trusts; 60%, real-return funds; 48%, target-risk funds; 47%, target-date funds; 27%, 130/30 funds; and 8%, hedge funds.
Advisers believe that an " overwhelming majority" of international funds offer a solid opportunity for growth and diversification, Mr. Harrington said in a press release last week, particularly in an increasingly global economy.
"Although it has taken several years, advisers have finally caught on to the diversification and increased returns provided by international funds," he said. "When you consider the recent turmoil in U.S. markets, they become an even more attractive option for advisers."
Mr. Harrington said that advisers believe real estate investment trusts will be a more viable investment option in about two years, when they expect that real estate markets will have recovered from the housing crisis.
Advisers also are more interested in selling real-return funds as a hedge against inflation.
Real-return funds can include investments in inflation-protected Treasury bonds, real estate securities, commodities, and high-yield bonds.
Mr. Harrington said that advisers who plan to sell real-return funds are less tenured, are likely to work for a national investment firm, and have a younger client base than advisers that are not offering the product.
"The roller coaster market conditions of 2007 make a product with stability and consistent growth a key addition to the portfolios of 2009," he said. "Advisers will use real-return funds as an added tool for retirees."
Advisers who anticipate selling target-risk funds are more likely to consider themselves "financial planners as opposed to wealth managers," he said, and will offer the product to meet client demand or because their practice focuses on retirement planning.
Similarly, nearly half of advisers expect to sell target-date funds by the end of next year. These products, which are also known as life-cycle funds, are designed to become more conservative as an investor's retirement date nears.
Advisers that sell target-date funds have a younger client base, higher than average assets in fixed annuity products, and higher than average compensation from transaction-based fees, he said.
Target-date funds are among the hottest retirement planning products, he said, and advisers are starting to realize how these funds can be a "core holding in a retirement income plan."
Cogent's Advisor Product Forecast is developed from a channel-by-channel survey of advisers that asks where they are directing assets under management and where they expect to direct them two years from now.
Cogent, which was founded in 1996, sells research, syndicated research products, and evidence-based consulting to financial services and life sciences companies.
