Absolute Return Study: Best performance since 2008: liquid alternatives significantly outperform hedge funds

UCITS-compliant hedge fund strategies (liquid alternatives) performed extremely well in 2021 to record their strongest result since this Study was first published in 2008. With an average return of 6.71%, they significantly outperformed unregulated hedge funds (3.65%) and positioned themselves as an alternative to the bond market’s negative returns. Individual strategies correlate strongly with the global equity market and were given a tailwind from this direction. A net EUR 15.5 billion of new capital flowed into this investment segment. The US Federal Reserve’s comments about tightening its monetary policy had an impact during the fourth quarter as investors withdrew around EUR 1.1 billion from absolute return bond strategies.

Since 2008, Lupus alpha has been analyzing the universe of absolute return and liquid alternatives funds on the basis of data from the analysis firm Refinitiv. The current evaluation as of the end of 2021 shows that the number of funds in the market has fallen by 126 to 724. In addition to fund closures, mergers or the withdrawal from the German market, this decline reflects in particular a reclassification of funds on the part of the data provider Refinitiv. Funds from the absolute return bond category were particularly affected, accounting for 48 of the 71 reclassifications. A total of 40 new products were launched. Including all reasons for additions and disposals, the number of products in the absolute return fund group fell from 344 to 270 funds, while the number of alternative funds fell from 506 to 454.

Liquid Alternatives perform better in crisis

Asymmetric strategies with positive returns

The average performance of the individual strategies in the segment ranges from -20.0% (Alt. Equity Leveraged) to +19.1% (Alt. Dedicated Short). Although the latter were the most profitable, they already lag behind all other approaches with negative performance over a 3-year period. While long-only strategies generated the majority of losses for the first time in a long time, asymmetric strategies achieved positive returns on average, such as alternative managed futures and relative value approaches.

Funds with a positive return in the first half of the year were predominantly characterized by effective loss mitigation: Four out of five funds from this group were able to limit their losses to a maximum of -7.5% (so-called maximum drawdown) over the course of the first six months.

"In an environment of falling equity and bond markets, strategies with an asymmetric risk-return profile and loss limitation have an advantage," says Ralf Lochmüller, Managing Partner and CEO of Lupus alpha. "However, it is important that these strategies are set up in such a way that investors can participate again in a market recovery even after losses have occurred," Lochmüller says.

Trend towards liquid alternative strategies

In Germany, the total volume of absolute return and liquid alternatives funds authorized for distribution is 256 billion euros. By the middle of the year, a net amount of 7.5 billion euros of capital had been withdrawn from the investment universe. Investor preferences were very much shaped by the macro picture, as shown by the strong outflows from alternative credit strategies: While they still recorded inflows in Q4 2021, they lost almost EUR 2.7 billion of their funds (-6.9%) in the face of high uncertainty and growing recession concerns. Accordingly, their share of the overall universe declined from 15% previously to just 10%. By contrast, the steady growth of the Multi Strategies asset class, which enables investors to diversify their capital market exposure, is remarkable: as of June 30, they managed almost ten percent more investor capital than twelve months ago and are now the second largest single strategy in the segment behind Absolute Return.

This development confirms the trend on the investor side away from absolute return towards liquid alternative strategies. Their share has grown in both absolute and relative terms in every year since 2019 and now stands at around 65% - ten years ago it was just one-third. The background to this change in investor preference is that alternative strategies are more diverse and allow investors to use them in a more differentiated way in their portfolios to achieve risk-return profiles that meet investor-specific requirements.

The downloadable white paper contains further detailed information, including a breakdown of the performance of individual strategies.

About the Study

Since 2008, Lupus alpha has been evaluating the universe of absolute return and liquid alternatives funds on the basis of data from Refinitiv. The Study covers funds with an active management approach that are authorised for distribution in Germany and are also UCITS-compliant. The Study focuses on market size, development and composition, performance in the investment segment and individual strategies, as well as key risk figures. It evaluates the three levels of aggregation – the overall universe, strategies within the universe, and funds within the strategies – and distinguishes between 14 strategies. For example, the long-short equity strategy includes 100 funds.About the Study
Since 2008, Lupus alpha has been evaluating the universe of absolute return and liquid alternatives funds on the basis of data from Refinitiv. The Study covers funds with an active management approach that are authorised for distribution in Germany and are also UCITS-compliant. The Study focuses on market size, development and composition, performance in the investment segment and individual strategies, as well as key risk figures. It evaluates the three levels of aggregation – the overall universe, strategies within the universe, and funds within the strategies – and distinguishes between 14 strategies. For example, the long-short equity strategy includes 100 funds.

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_{This is fund information for general information purposes. The fund information does not replace own market research or other legal, tax or financial information or advice. The information presented does not constitute an invitation to buy or sell or investment advice. It does not contain all information essential for economically significant decisions and may deviate from information and assessments of other sources/market participants. No responsibility is taken for the accuracy, completeness or timeliness of this information. All statements are based on our assessment of the current legal and tax situation. All statements of opinion reflect the current assessment of the portfolio manager and are subject to change without notice. Full details of the fund and its marketing authorization can be found in the latest sales prospectus and, where applicable, in the key investor information supplemented by the latest audited annual report or the latest semi-annual report. The sole legally binding basis for the acquisition of units in the funds managed by Lupus alpha Investment GmbH is the respective valid sales prospectus and the key investor information, which are written in German. These can be obtained free of charge from Lupus alpha Investment GmbH, Postfach 11 12 62, D-60047 Frankfurt am Main, Germany, on request by telephone at +49 69 365058-7000, by e-mail at service@lupusalpha.de or via our homepage www.lupusalpha.de. .}

FURTHER INFORMATION

Pia Kater

Press officer, Communications

pia.kater@lupusalpha.de

+49 69 / 36 50 58 - 7401

to our press area

Pia Kater

Press officer, Communications

pia.kater@lupusalpha.de

+49 69 / 36 50 58 - 7401

to our press area

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Absolute Return Study: Best performance since 2008: liquid alternatives significantly outperform hedge funds

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