Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Defensive ‘alt stars’: 5 funds outperforming over 3 years
One the biggest challenges, when reviewing this sub-asset class, is understanding how they are defined; for example, some experts split sub-classes into defensive and growth, while others place them all in a single bucket.
The investments themselves also typically involve intricate instruments that are unfamiliar to many investors, which is further complicated by challenges in valuation due to scarce market data and non-standard valuation models.
Based on the Atchison approved product list, funds that utilise the above ‘non vanilla’ and hedge fund-like financial instruments, while retaining defensive characteristics, are defined as defensive alternatives.
Below are the top 5 performing defensive alternative funds over a the 3-year timeframe, taken from a list of around 50 funds in the universe, with an average return of 4 per cent over the period.
The above figures are sourced from the Atchison APL Peer Group Benchmark, which is the Credit Suisse Equity Market Neutral Hedge in AU.
Over the 3-year time frame in focus, the AQR Wholesale Managed Futures Fund was the clear performance leader, returning 19.40 per cent and outperforming the Credit Suisse Equity Market Neutral Hedge in AUD benchmark by 16.22 per cent.
Insights: AQR Wholesale Managed Futures
The AQR fund is actively managed and primarily invests in a portfolio of futures contracts and derivative instruments across commodities, currencies, fixed income, credit, volatility and equities. The fund follows a systematic approach, with key contributors year to date being:
- Alternative markets +6.8 per cent
- Currencies +2.6 per cent
- Fixed income +5.7 per cent
Insights: Winton Global Alpha Fund
Winton’s investment strategy is largely systematic and uses statistical techniques to find patterns and relationships in data to identify investment opportunities. Some performance drivers were:
- Losses were mainly in energy and precious metals. Currency trades, particularly short positions in the Japanese yen.
- Short positions, notably in the Russell 2000, yielded profits, offsetting losses from long positions in the TOPIX.
Insight: Partners Group Global Value Fund (AUD) – Wholesale
The fund’s investment objective is to obtain superior returns and to achieve capital growth over the medium and long-term by investing in private companies.
PIMCO Trends Managed Futures Strategy Fund – Wholesale
PIMCO Trends Managed Futures Strategy Fund is an alternative investment strategy that seeks to capture momentum across major asset classes including equities, interest rates, commodities and currencies. Key recent contributors included:
- Short global duration
- Short positions in select industrial metals
Harvest Lane Asset Management Absolute Return Fund
The fund is focused on generating superior risk-adjusted returns for its investors. Historically, the fund has found many such opportunities have existed within the ‘event’ space and as such regularly invests in merger arbitrage situations, along with select capital raisings and other corporate actions.
Recent performance and contributors:
- September’s negative results, driven by volatile scrip-based deal spreads, reversed positively in October.
- Dacian Gold Limited (DCN.ASX) added nearly 1 per cent to NTA after its recent portfolio inclusion. Genesis Minerals sought to acquire the remaining 20 per cent of Dacian, with a tiered offer improving from $0.235 to $0.27 per share if they achieved over 95 per cent ownership.
- Lithium Power International Limited (LPI.ASX) agreed to a scheme with Codelco at $0.57 per share, despite regulatory risks from changes in Chile’s National Lithium Policy.
Summary
All 5 funds have outperformed the allocated benchmark over the 3-year timeframe despite applying significantly different approaches, which serves to highlight the benefit of exposure in diversified alternatives.
The trend-following strategies in AQR and Winton benefitted from greater volatility and direction in markets, while a slowing IPO market has thus far not impacted the private equity allocations.
