Alt Ucits under the microscope: key trends revealed

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Amid the hype of equity and bond markets’ strong performance in 2012, Alternative Ucits went almost unnoticed.

But Citywire’s analysis reveals that, on average, these funds generated an inflation beating return of 4.3%. When assessing this versus hedge funds, it is slightly behind the 4.8% return of the EuroHedge composite index over the same period.

Long/short strategies, the most popular Alternative Ucits sector, came in just ahead of the overall hedge fund universe, with an average return of 5%.

An eventful year

Our analysis also shows that 2012 was a year of consolidation for our Alternative Ucits universe. The 550 or so funds we track available in a euro share-class is the same as a year ago, but here we take a look at what has been happening behind the numbers.

At the half way point of the year we identified a trend of funds closing and investors moving away from the popular long/short strategy into areas such as Credit and Volatility Trading, notably during market sell-offs. 

The closing of funds also continued in the second half of the year. Overall, out of the 112 funds that have been wound up since we launched our database, 80% of the closures took place in 2012.

Noticeable strategies that have been affected are Currency, Global Macro and Long/Short Equity whilst Event Driven, Managed Futures, Volatility Trading and Multi Strategy have remained stable.

This consolidation has been counterbalanced by the fact that just as many funds have been launched than closed.

Niche players are still entering the market, notably from the US, but well known players such as Threadneedle, Amundi and JP Morgan, to name a few, are extending their ranges too.

Flows haven't stopped

Even with around one sixth of the funds closing since January 2012, there has been no negative impact resulting in outflows.

It seems that the funds which have disappeared were very small and therefore had little or no effect on overall growth in the sector.

Despite the consolidation there have been inflows of approximately €7.5 billion in the last 13 months since January 2012. However, our analysis reveals that there are still outflows when risk is heightened which was the case during the second quarter of last year.

Alternative Ucits Strategies are expected to do well during negative market conditions giving investors some downside protection but they are clearly not viewed as a relative safe heaven.

Inflows picked up again in the second half with governments intervening and people regaining confidence in the global economic outlook, this led to Inflows of around €4.6 billion.

This trend has even continued in the New Year with around €1.2 billion inflows in January 2013.

Citywire currently tracks 725 funds of which 540 are available in euro share-class funds. These funds sit across 13 different strategies. For more details on these funds please visit our website.