Rampant volatility and uncertainty are challenging asset managers to seek out alternative fund styles and investment mixes to deliver income and greater certainty to investors.

However, the explosion of a raft of new esoteric and non-esoteric fund styles in the UK is creating education challenges, as research has found that investors – at least in 2011 – typically only invest in products they understand.

Therefore with asset managers seeking to attract yield hunting and battle-weary investors into, for example; absolute return, volatility and structured product funds, product providers face a wall of misunderstanding and misconception… and ultimately, poor inflows.

Specifically, industry experts have talked up the rise of absolute return and ETF funds – two product types representing the polarisation of the markets.

Investors, so the pontificating goes, are said to choose higher risk, higher return, more expensive active products for the alpha portion of their portfolio and cheaper, passive products to tap into their beta return.

But this is just the theory.

As part of the CoreData Funds Management study in Britain, we outline investor understanding of certain financial instruments, some of which are considered alternative by the wider investment community and others that are often thought to be quite traditional.

The research reveals how familiar investors are with these products, and more importantly whether they are willing to allocate any money to them.

The research finds few investors are familiar with these more alternative investment styles. For example, more than four in 10 express levels of unfamiliarity with absolute return – a fund type which has been at the epicentre of the drive towards new approaches to investment in the UK over the past 18 months.

Of the investors expressing a lack of familiarity with an absolute return, 13.7% say they are somewhat unfamiliar with this type of fund and a further 27.4% say this product is very unfamiliar to them. Just 5.7% of investors are very familiar with this approach and a further 16.6% are somewhat familiar with it.

However, despite the lack of awareness, it seems fund managers are right to be pushing absolute return funds to the forefront of their suite of funds available.

The study goes on to reveal 37.5% of investors would be willing to allocate to this asset over the next five years. Of this group, 15.7% would invest within the next year and 8.5% would do so within the next two years.

However, the industry still has some work to do as 16.8% of investors say they would consider an allocation to absolute return but need to learn more about it first.

Across all the asset types covered in the study, at least 10% of investors say they need to learn more about the product before they would be willing to put money into it.

This suggests the education effort around these fund types needs to continue.

If those investors on the fence are armed with additional knowledge, then the majority of clients would be willing to invest in most of the asset types under review – which should, therefore, see fund managers register inflows at some point in the future.

A critical task for under-fire active managers in these times of extreme volatility.