Fearing that the current preoccupation with long/short equities will lead to short trades becoming too crowded, José Luís Borges insists on his long/short funds being market-neutral. However, the Lisbon-based head of institutional portfolios at BPI Gestão de Activos is otherwise happy to be overweight equities.
Some investors replace part of their fixed income holdings with market-neutral equity. Though these funds are supposedly uncorrelated to the equity market, it’s better to choose a diversified approach, argues Rui Machado, alternative investments director at IM gestao de ativos in Lisbon.
Fund selectors expect an annual return of less than 2% from their bond portfolios over the next five years. The Great Rotation is therefore finally happening. However, it’s not from bonds to equities, but to absolute return.
The equity markets have only just stopped falling, but fund buyers are already preparing for the next market correction. Eight in 10 of delegates at Expert Investor’s Pan-European Congress in Rome expect equity markets to repeat their more than 10% falls before the end of the year.
The start of the year has been rough for equity markets, but investors in Barcelona expect another market plunge before summer. They are also hedging their bets politically, it seems, as the uncertain investment outlook has prompted many to drop their support for independence.
Portugal’s fund selectors are switching part of their bond allocations to absolute return funds. They now have between 10% and 15% of their portfolios allocated to absolute return, and that share is rising.
There are two types of absolute return funds, and there are only 40 alternative Ucits funds to pass the hedge fund test. As a matter of fact, absolute return funds are far from a straightforward concept.
Multi-strategy funds have a far higher correlation to global equities than long/short equity funds, and especially market-neutral funds, according to research conducted by Natixis Global Asset Management.
In a video interview with EIE’s Tjibbe Hoekstra, Michael Ausfelder of wealth and asset manager Vermögenszentrum explains why he believes alternative Ucits funds are indispensable for modern-day portfolios.
The Argonaut Absolute Return Fund, a long/short European equity strategy, is Eddy Vanwittembergh’s favourite fund. He maintains the fund as his largest position in the fund-of-funds he runs at the Belgian wealth management company Merit Capital.
If investors use alternative Ucits funds, they prefer to allocate significantly. Some 42% of delegates at Expert Investor Europe’s Alternative Ucits Congress, held last week in Versailles, believe a medium-risk portfolio should contain more than 25% of alternative Ucits funds.
In Switzerland, there are more investors planning to increase exposure to high-yield bonds than to all other fixed income categories combined.
