Investing outside the box MainStay Investments High Net Worth Investor Study on Non-Traditional Investments

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1 Investing outside the box MainStay Investments High Net Worth Investor Study on Non-Traditional Investments Diversification, growth, and principal protection

2 Executive summary In October 2013, MainStay Investments, a New York Life company, commissioned Harris Interactive to conduct a research study to learn more about the usage and perception of non-traditional and alternative investments among High Net Worth (HNW) investors. 1 The study, conducted online from October 24 to November 11, 2013 among a nationally representative sample of 806 HNW investors, covered topics related to investors interest and knowledge of alternative investments, their current use, and the perceived benefits of these types of strategies. 2 The unique research confirmed that HNW investors see non-traditional investments becoming a core holding, yet wide knowledge gaps remain. Investors who are currently utilizing non-traditional strategies are doing so to protect principal and achieve diversification and better returns. Three in five HNW investors who currently use alternative investments have increased their portfolio exposure over the past year. However, two in five HNW investors say they lack confidence in their knowledge of this area. HNW investors cited that financial professionals can play in important role in helping them overcome this challenge, with nearly 60% of investors indicating that their perception about alternative investments is influenced by their financial advisor. The study further showed that HNW investors using alternatives have allocated more than a fifth of their portfolios to alternative investments, and a quarter of these HNW investors expect their exposure to alternatives to increase over the next five years. Key findings of the new research study HNW investors are looking to alternatives for diversification, principal protection, and to achieve better returns. Financial advisors play an important role in helping HNW investors to learn about alternatives. Commodities are the most commonly held alternative investment, followed by private equity and long/short equity. A majority of HNW investors feels there is not enough information available on alternatives to allow them to evaluate their benefits as part of a portfolio. An overwhelming majority of HNW investors who have used alternatives says they would either recommend or consider recommending using alternatives to others. For most HNW investors currently using alternatives, leveraging alternative investments in their portfolio has been positive. 1. The terms investors and HNW investors as used in this report refer to the survey respondents as a whole, unless otherwise specified. 2. See page 6 for survey methodology and participant profile. 1

3 Seeking diversification and growth potential in non-traditional investments A key theme of the research was how HNW investors are thinking about non-traditional investing. Investors currently using alternatives list increased diversification (50%) and growth potential as the primary reasons for investing in alternatives. Three in five HNW investors (60%) also view protecting principal as a key role of alternatives. Top Five Reasons for Investing in Alternatives 30% 28% 34% 50% 48% Increased diversification, increased growth potential, and enhancing investment income are the top three reasons for investing in alternatives % Appendix 1 In addition, the study found that a range of non-traditional investments is increasingly becoming the norm for HNW investors, and that ultra HNW investors are even more likely to invest in alternatives and for a longer period of time. Overall, the study showed commodities are the most commonly held alternative investment, followed by private equity and long/short equity: Commodities 48%, Private equity 39%, Long/short equity 36%, Hedge funds 34%, Managed futures 30%. Leading Methods to Access Alternatives Mutual funds Exchange traded funds/ Exchange traded notes Managed funds Commodities Hedge funds/ Funds of funds 65% 40% 38% 29% 23% % Investors report that the most common vehicle for investing in alternatives is through mutual funds (65%), followed by ETFs (40%) and managed funds (38%). Appendix 2 2

4 Understanding risks of non-traditional investments Concern about risk is the biggest factor keeping HNW investors from using alternatives more broadly in their portfolios. In fact, half of the survey respondents who do not invest in alternatives today say it is because they view alternatives as too risky (49%). Greatest Concerns About Alternatives Too risky Lack of liquidity High fees Tax issues/concerns Too complex 5% 8% 25% 22% 18% 34% 32% 30% 49% Risk is seen as the greatest concern among HNW investors, regardless of whether they are invested in alternatives or not. Not familiar enough 0% 5% Not recommended Broker issues 0% 0% Invests in alternatives Does not invest in alternatives Other No concerns 12% 20% % Appendix 3 However, the study found that understanding the risks is the key to getting investors comfortable with alternative investments, and that advisors can help bridge the information gap. Among HNW investors, the most frequently utilized methods for seeking investment ideas and education about alternatives are sources advisors (60%), the internet/financial web sites (4), and research papers/reports (35%). Sources for Alternative Investment Ideas Financial advisors Internet search engines/ 4 60% Advisors and internet research are the most common modes of generating investment ideas. Research papers/reports 35% Financial services companies 30% 29% 26% TV 14% Social media Other 4% % Appendix 4 3

5 Looking for guidance on alternatives A majority of HNW investors feels that there is not enough information available on alternatives to evaluate their benefits as part of a portfolio (6). As HNW investors look for more guidance on alternatives, they primarily seek information about potential risks (73%) and hope to gain a greater understanding of how these investments work (7). Knowledge Is Power Information about potential risks A description of how it works Details about who is managing the investment and their track record 54% 54% 73% 74% 7 75% Regardless of whether or not an investor works with an advisor, the study showed respondents would like information about risks and how investments work. my returns 25% 46% Refer me to a web site 12% 28% Other 5% % Appendix 5 Despite the need for more guidance, the study found that respondents who do not currently invest in alternatives were still open to alternative investments and would be comfortable with an exposure of approximately 14% in their investment portfolio (those already invested were holding approximately 22%). In addition, the findings also showed that HNW investors who have had conversations with their advisors about alternatives were more likely to invest than those who have not (49% to 3%, respectively). Getting Guidance from Advisors Overall 3% % 49% Investors who had conversations with their advisor regarding alternative investments were significantly more likely to invest in alternatives. Appendix 6 4

6 Overall positive outlook on non-traditional investments The research indicated that HNW investors are more satisfied once they feel knowledgeable about non-traditional investments. An overwhelming majority of investors who have used alternatives says they would either recommend or consider recommending using alternatives to others (88%). Alternative investments have been beneficial for most HNW investors both in terms of their experiences and results: Two-thirds of HNW investors have found utilizing alternatives to be positive (67%). The same percentage reports the effect on their portfolio has been net positive (67%). In the next five years, HNW investors overall see their exposure to alternatives increasing (26%) or staying the same (66%). HNW Investors Recommend Alternatives Overall 1 65% 23% Investors who use alternatives are having a positive experience and, as a result, would recommend them to others % Highly recommend Would not recommend Consider recommending Highly discourage Appendix 7 Overall, HNW investors agree that alternatives will become more important and mainstream over the next five years. In fact, half of HNW investors agree that alternatives may become more important over the next five to ten years (5) and will be considered a core holding. Subsequently, HNW investors currently using alternatives anticipate their portfolio exposure to increase 2.9% in five years. Increasing Exposure to Alternatives 25% 21.8% +2.9% 24.7% Current alternative investors anticipate increased allocation in alternatives Appendix 8 0 Current Overall 5 years 5

7 Methodology and participant profile All respondents were U.S. residents aged 40-65, with at least $1 million in investable assets (not including the value of their home). Sub-samples included HNW investors ($1 million to $3 million in investable assets) and ultra HNW investors (more than $3 million in investable assets). Data was weighted (statistically adjusted) to be representative of the high net worth investor population across the U.S. The following sub-samples were achieved: HNW investors ($1M - $3M in investable assets): n = 539. Ultra HNW investors ($3M+ in investable assets): n = 267. Percentages were rounded to the nearest whole percent. Differences in the sums of combined categories/answers are due to rounding. * Denotes proportion between 0% and 0.5% (unless otherwise noted). Age Total HNW U-HNW (NET) 36% 33% % 5% 17% % 14% 15% % 15% 10% (NET) 64% 67% 59% % 24% 25% % 35% 26% 65+ 8% 8% 8% MEAN Race/Ethnicity Total HNW U-HNW White 85% 88% 80% Hispanic 5% 4% 6% Black/African American 3% 2% 6% Asian or Pacific Islander 5% 4% 6% Native American or Alaskan Native 0% * * Some other race Decline to answer * Region Total HNW U-HNW East 25% 26% 23% Midwest 16% 16% 16% South 30% 3 27% West 30% 27% 34% Gender Total HNW U-HNW Male 70% 7 70% Female 30% 29% 30% Income Total HNW U-HNW Under $50,000 4% 3% 7% $50,000 to $74,000 6% 6% 5% $75,000 to $99,999 10% 10% 10% $100,000 to $124,999 19% 22% 13% $125,000 to $149,999 13% 15% 9% $150,000 to $199,999 17% 18% 15% $200,000 to $249,999 10% 9% 12% $250,000 or more 18% 13% 28% Decline to answer 2% 2% 2% About MainStay Investments and Harris Interactive With over $98.9 billion in assets under management as of December 31, 2013 across retail mutual funds and variable product sub-accounts, MainStay Investments is the mutual fund distribution arm of New York Life Investment Management LLC. MainStay provides financial advisors access to a powerful mix of autonomous, institutional investment managers, delivered by people who understand the needs of today s financial advisors. As an indirect subsidiary of New York Life Insurance Company, a Fortune 100 company founded in 1845, MainStay is owned by the largest mutual life insurance company in the U.S. and one of the largest life insurers in the world. Please visit MainStay s web site at for more information. Harris Interactive is an independent market research company that was contracted by New York Life Investment Management LLC to conduct a survey for release by MainStay Investments. 6

8 Appendix 1. Top Five Reasons for Investing in Alternatives Base: Investors who are currently investing in alternative investments (Overall n=233) Q745: What are the three primary reasons you invest in alternative investments? 2. Leading Methods to Access Alternatives Base: Investors (Overall n=806) Q810: Which of the following are you likely to use to access alternative investments? Please select all that apply. 3. Greatest Concerns About Alternatives Base: Investors who are currently investing in alternative investments (Overall n=233) Q750: What are your biggest concerns regarding alternative investments? Base: Investors who are not currently investing in alternative investments (Overall n=573) Q760: What is the primary reason you do not invest in alternative investments? 4. Sources for Alternative Investment Ideas Base: Investors (Overall n=806) Q805: In terms of non-traditional investments, where do you generate investment ideas from? Please select all that apply. 5. Knowledge Is Power Base: Investors who work with an advisor (Overall n=575) Q820: When working with a financial advisor to understand a new opportunity, such as alternative investments, which of the following approaches would be most helpful? Base: Investors who do not work with an advisor (Overall n=231) Q835: When understanding a new opportunity, such as alternative investments, which of the following approaches would be most helpful? 6. Getting Guidance from Advisors Base: Investors (Had conversation: Overall n=382; Did not have conversation: Overall n=193) Q730: Are you currently investing in alternative investments? 7. HNW Investors Recommend Alternatives Base: Investors who are currently investing in alternative investments (Overall n=233) Q915: Based on my experience with alternative investments to date, I would: 8. Increasing Exposure to Alternatives Base: Investors who are investing in alternative investments (Overall n=233) Q850: How much alternative investment exposure (as a percentage) do you currently have in your investment portfolio? An approximate percentage is fine. Base: Investors (Overall n=806) Q930: In five years, what might your exposure to alternative investments be (as a percentage) within your portfolio? About Risk: Alternative investments/strategies are speculative, not suitable for all clients, and intended for experienced and sophisticated investors who are willing to bear the high economic risks of the investment. Alternative Investments/Strategies may involve additional risks such as loss of all or a substantial portion of the investment due to leveraging, short selling or other speculative practices; possible illiquidity and default; increased susceptibility to adverse economic developments; volatility of returns; absence of information regarding valuations and pricing; complex tax structures and/or delays in tax reporting; and less regulation and potentially higher fees than traditional mutual fund strategies. Use of a financial advisor does not ensure investment success. Diversification does not guarantee a profit or ensure against loss. There is no guarantee that any investment strategy will meet its objective. The information herein is general in nature and is provided solely for educational and informational purposes. Neither MainStay Investments nor its affiliates provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors. For more information about MainStay Funds, call 800-MAINSTAY ( ) for a prospectus or summary prospectus. Investors are asked to consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectus and summary prospectus contains this and other information about the investment company. Please read the prospectus or summary prospectus carefully before investing. For more information mainstayinvestments.com/nontraditional MainStay Investments is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. Securities are distributed by NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, New Jersey Not FDIC/NCUA Insured Not a Deposit May Lose Value No Bank Guarantee Not Insured by Any Government Agency NYLIM MS MS61l-02/14