Lyxor’s Cross Asset Research team reports on the discussion over the recent weeks on the outflows suffered by the hedge fund industry. Several data providers estimated the decline in global hedge fund capital in the first quarter of 2016 at about USD15 billion, the firm says.
However, Lyxor notes that strong inflows into alternative UCITS in Europe have gone unnoticed. “According to Morningstar, alternative UCITS experienced net inflows of EUR3.6 billion in March, bringing the cumulated figure to EUR7.7 billion in Q1-16 (based on the universe of funds available for sale in Europe),” the firm writes.
Lyxor also notes that the strong appetite for alternative UCITS is in stark contrast with the outflows experienced by traditional asset classes: in Q1-16, equity mutual funds experienced outflows of EUR20 billion and fixed income and credit funds saw outflows near EUR13bn.
Meanwhile, money market and diversified funds also suffered outflows, Lyxor says. “Conversely, alternative UCITS is the only asset class experiencing inflows in Europe during the first quarter. The reasons for such appetite are multiple. On the one hand, the market environment has deteriorated over the last 12 months. European equities suffered a double digit drawdown with annualised volatility in excess of 20 per cent, while Euro area sovereign bonds also experienced higher volatility than usual. On the other hand, the outlook for traditional assets is clouded by many uncertainties: valuations across asset classes are rich, economic and earnings growth face dim prospects and a huge share of risk-free assets in the eurozone are yielding less than 0 per cent… In this context, investors have piled into alternative strategies that offer higher risk adjusted returns in relative terms.”
Recent performance finds the Lyxor hedge fund index down 0.4 per cent during the last week of April, and down 0.9 per cent in April. Fixed income and credit arbitrage outperformed while CTAs underperformed as a result of the rise in bond yields, says Lyxor.