Advisors expect double-digit growth in hedge funds & alternative assets

Morningstar polled 600 advisers in August and found that 65 percent of them expect more than double-digit growth in alternative investments, which include hedge funds.

"We were surprised to find that the majority of advisers expect double-digit growth in alternative assets under management every year for the next five years," said Steve Deutsch, director of separate accounts and managed investments at Morningstar.

These expectations might be 'unrealistic,' says a Reuters report. And, the Daily Reckoning comments…

Unrealistic? They are hallucinating. This year hedge funds actually underperformed mutual funds; hedge funds made about 7% in the first nine months of the year, while mutual funds did about 8 percent. Compare both of those to the S&P, which is up 12 percent.

Double-digit gains? It is possible…but very unlikely. With 9,000 funds, odds are they are going to generally mirror the performance of the broad market. How could they not? They ARE the market. But investors are likely to do worse, because the hedge funds charge such high fees. And if the markets go down, hedge funds are likely to go down further and faster, because they tend to be leveraged.