"This whole concept of your alternatives in your portfolio are doing what they're supposed to do, but compared to the rest of your portfolio, they look like they're underperforming-it's a market scenario that we haven't really had while alternatives were as popular as they are now," said Campbell. "I think it's a scenario that we could see how well advisers and asset managers have communicated what investors should expect from these strategies and how they should perform in various scenarios."
As for managers, Papazian advised that they should tackle specific categories within alternatives, rather than the space as a whole, when gauging whether these strategies "make sense" for their portfolios. Managers should also evaluate whether these strategies are truly part of their expertise. "So if your strength is fixed income and you want to do alternatives, don't suddenly go into MLPs where you don't have a prior presence," he said.
Morningstar's Papagiannis concluded that 2008 gave investors a false hope for what these strategies could achieve. "I think the challenge will be to demonstrate to investors that they even need alternatives when going long-only is going just fine for them," she said.