A Bank of America survey of financial advisers found that investor demand for alternative investments is cooling, but financial advisers expect to add to these assets in the long run to promote diversification. Alternatives have had a hot year in 2022, but will struggle in 2023 as stocks rise — a move that makes sense since alternatives can hedge against equities. Consider the AGF US Market Neutral Anti-Beta Fund (BTAL), which gained 19% last year but is set to fall more than 8% in 2023. “Surveys show lower demand for alternative investments (in the short term) from private wealth channels, but the majority still expects distributions to be much higher over five years,” analyst Craig Siegenthaler said in a weekly note. Four reports. Last week, the firm conducted its quarterly survey of financial advisors and received responses from 159 individuals. More than four in 10 advisors said demand for alternative investments was “no change” or declining, the lowest level since Bank of America began surveying in the first quarter of 2022. In the longer term, though, advisers say they see a need for alternative investments. “The key driver of demand remains diversification/relevance benefits,” Siegenthaler wrote. Private equity topped the list of alternative categories with the strongest investor demand, followed by private assets in “investor-friendly vehicles” such as private real estate investment trusts and business development companies. Both private REITs and business development companies can offer attractive returns, but they also come with a host of risks, including a lack of liquidity. In the income space, nearly half of advisors shifted client deposits into higher-yielding money market funds, while about 34% raised cash and liquidity due to market uncertainty, Bank of America found. In fact, retail money market fund assets rose to $1.99 trillion in the week ended June 21, according to the Investment Company Institute. An increase of $6.66 billion. Yields on these funds remain attractive, with the Crane 100 Money Fund Index’s 7-day current annualized return of 4.92% as of June 22. Bank of America predicts that advisors will reduce the amount of cash they hold when volatility normalizes. Saving money for clients, but they will continue to choose higher-yielding liquid products — such as these money market funds. — CNBC’s Michael Bloom contributed to this article.