Posted inAbsolute ReturnAlternativesEquities

Alternative Ucits – you love it or you hate it

Such strategies have enjoyed massive net inflows over the past years, even though approximately 40% of European investors do not use alternative Ucits at all. So those who use them are proper converts and only want to use more.

 Stéphane Enguehard, who oversees alternative products development at Lyxor AM, is such a fan. “I would recommend to invest around 50% of a portfolio in absolute return products,” he says.

 

“That’s simply because at this point of the investment cycle I’m not confident my money would deliver my expected return over the next 12 to 24 months if held in long only investments.”

Total flows into Ucits funds have been rising exponentially over the past years. Net fund flows rose from €17.9bn in 2012 to €46.7bn in 2014. In the first eight months of the year, this record has already been smashed: net inflows over the same period this year amounted to €61bn.

Returns don’t keep up

Interestingly, the returns achieved by most alternative Ucits funds do not really explain their popularity. Moreover, their return profile has generally weakened since 2008. The most popular strategies in terms of fund flows have been long/short equity, long/short debt and especially multi-strategy funds. In 2008, all these strategies made double-digit returns, but in the past year or so multi-strategy have struggled to deliver any returns ( in euro’s) after costs. 

Though some fund selectors have been left disillusioned by these disappointing returns, most still see lots of potential, especially since volatility has been increasing over the past months, offering new opportunities to highly active managers.

Part of the Bonhill Group.