Alternative UCITS funds had a very steady and solid 2019 overall. The LuxHedge Global Alternative UCITS Index posted a gain of +4.2% over the past year with more than 80% of funds ending the year in positive territory. Except for Equity Market Neutral funds, all strategies had a very good year. Macro funds performed particularly strong with the LuxHedge Macro UCITS Index advancing +6.7% in 2019.

2019 started with significant outflows for many Alternative UCITS funds and the first half of the year brought a total decline of -6% in assets. Especially a few very established and well-known strategies suffered from investors withdrawing large amounts. The second half of the year saw investor flows stabilizing again, with assets under management in the total universe declining slightly with about -1%.

A decent, but declining alpha over equities and bonds

An average performance of a bit more than 4% might seem rather small in comparison with the 2019 results for traditional asset classes. To put things in perspective, it’s important to realize that Alternative UCITS funds in general have an absolute return “Cash+” objective and as such don’t benefit much from gains in underlying equity or bond markets.

The average fund, as measured by the LuxHedge Global Alternative UCITS Index, is not fully market neutral though. The average exposure to equity and bond markets has been about 13% and 16% respectively since 2008, so Alternative UCITS funds have benefitted somewhat from tailwinds in risk assets. Still after accounting for this effect, a positive alpha of roughly 0.5% to 1.0% per annum remains (after fund fees that is of course).

We do notice that these average alpha’s versus different benchmarks are declining in recent years though. At the end of the day, we believe this may be the best explanation as to why 2019 was the first year where we witnessed net outflows for the universe as a whole.

Of course, these figures apply to the universe as a whole, as measured by our equally weighted index of funds. Since dispersion is typically very large between different Alternative UCITS funds, many investors who are able to pick the right funds for their portfolios do still enjoy superior returns.

For further details on performance and asset flows, please refer to our monthly market overviews.