Posted inAbsolute ReturnAlternatives

Alternative Ucits investors bet on the wrong horse

Event-driven strategies, which try to capitalise on short-term movements in the share price of specific companies, saw their assets under management increase by 59% to €5.1bn between June and December last year. However, the AH Event Driven Index returned an awful return of -2% in Q3 and -1.53% in Q4, by far the worst performance of all alternative Ucits categories over the period.

Alceda blames the poor results of event-driven managers on ‘some idiosyncratic events.’ “In particular some large deal breaks in September and October caused the index to lose ground, the report says.

Strong inflows, but modest returns

In absolute terms, long/short credit and global macro strategies enjoyed the highest popularity, seeing assets under management increase by 49% and 25% respectively in the final six months of the year. However, these strategies also struggled to provide returns to investors in a low-volatility environment. Long/short credit returned only 0.61% on average in 2014, and global macro managers did even worse, finishing the year in the red with a return of -0.29%.

The AH Global UCITS Index (an index of alternative strategies) returned 1.34% over 2014, helped by well-performing FX and Managed Futures funds. However, this is still very modest compared to the performance of the MSCI World Index, which was up 5.5% at year-end.  

Crash fear or common sense?

This raises the question why European investors keep stepping up allocation to alternative strategies, though fees tend to be higher than for long-only funds, while returns have been disappointing. This immediately warrants a qualification though: at €224.3bn, the alternative Ucits market is still rather small, compared to the total Ucits-universe of more than €8,000bn. So maybe it’s simply all down to portfolio diversification, rather than acute fear of a market crash…   

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