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Absolute return: it’s really a retail affair

You might have had a gut feeling that it’s mainly banks and wealth management companies and their clients buying liquid alternatives. The facts show that’s indeed the case, but it hasn’t always been this way.


PA Europe

Year-to-date, net flows into the retail share classes of alternative UCITS funds have been more than three times as high as net flows into institutional share classes, according to data provided exclusively to Expert Investor Europe by Morningstar. Retail investors poured in a record €33.4bn into alternative UCITS funds in the first half of the year, compared to just €9.5bn of net inflows from institutional investors.

As investors’ choice within the alternative UCITS spectrum is now much greater than a couple of years ago and investors are increasingly looking for uncorrelated returns and alternatives to long-only fixed income, it’s no surprise that inflows have behaved accordingly. In the first 6 months of 2012 for example, net inflows into retail share classes were just 10% of inflows in the same period this year.

Diverging growth

Interestingly, inflows from institutional investors have not grown as fast: from €3.9bn in the first half of 2012 (even slightly higher than retail flows!) to €9.5bn three years later. A reason for that might be that institutional investors like pension funds have the opportunity to invest in less liquid assets such as infrastructure, mortgages and real estate, all of which have enjoyed large inflows recently.

The liquid absolute return categories especially favoured by retail investors compared to institutional investors are multi-strategy, long/short equity and long/short debt, which account for more than 90% of net retail inflows. Global macro funds are the exception: since January 2014, total institutional flows have lagged those from retail investors only marginally.