Posted inAbsolute ReturnFRENELUX

Absolute return enthusiasm fades with Belgian fund buyers

When our researcher recently visited Belgium, he found that less than one in five Belgian fund buyers plan to increase their allocation further. This is, together with Norway, the lowest figure in Europe, and the contrast with the last quarter of 2015, when six in 10 Belgian fund buyers said they would increase their allocation, is exceptionally pronounced.

Since then, interest in alternative Ucits funds has gone steadily downhill to reach a record low, and the share of fund buyers who do not use the asset class has crept up to over 30%.

Some buyers remain

Multi-strategy and long/short equity funds still retain some buyers however. Though most funds in this area have failed to generate returns, they have been reasonably uncorrelated to long-only investments. They therefore retain a place in some investors’ portfolios, though it must be noted that many interviewees have given up on them as the spell without absolute returns has extended itself. 

 

Another reason some investors stick to absolute return funds, is that they have principally bought them to prepare for an equity market crash. As this crash still hasn’t come, they’d better stick to their guns.

“What I look for in absolute return funds is the capacity to mitigate the impact of a market crash, and limit losses of the total portfolio,” says Tim Peeters, head of securities portfolios at multi-family office Portolani, who has an allocation of about 30% to absolute return funds. “After a market crash, we could reduce our positions and invest more in equities.”

Bubbly bonds

The reason Belgian investors who would also like to see some returns from their absolute return holdings have not yet abandoned their positions, is that they don’t really see an alternative.

Fixed income is considered even less attractive, with the exception of emerging market debt. Investment-grade bonds don’t offer any meaningful yield, and with the ECB not expected to ramp up its stimulus measures, interviewees see an increased risk of fixed income bubbles bursting. Even for high-yield bonds, bears outnumber bulls by a considerable margin.

Part of the Bonhill Group.