New Research by German specialist manager Lupus Alpha suggests that institutional allocations in Liquid Alternatives and Risk Premia strategies are not only growing, but are becoming a commonplace feature of the portfolio construction process. There is a suggestion that this has, to a degree, been at the expense of more established Absolute Return and Long/Short strategy investing - categories which made up two-thirds of the Alt UCITS market as recently as 2014 but which now represent less than half of new funds licensed for distribution.
Meanwhile, in the UK the formidable growth of factor investing over the past ten years or so feels like it's set for the next stage in its evolution, as Liquid Alt's looks to become a feature of some well established multi-asset and passive based platforms...
The volume of absolute return and alternative Ucits funds approved for distribution in Germany increased by almost 6% to €276bn in the first half of 2018. Demand was primarily driven by institutional investors, who accounted for more than 70% of inflows. Global macro and market neutral equity strategies were particularly in demand. Overall, the fund universe became increasingly concentrated, with the top 5% (40 funds) managing 46% of total volume.
The challenging market environment of rising returns and predominantly weaker equity markets is also being reflected in 2018 performance. Although the average return of all evaluated funds in the first six months of the year was just -0.36%, this meant that they outperformed hedge funds, European equities and corporate bonds. Long/short funds that primarily invest in the USA or worldwide achieved positive returns.
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