Poor-performing bonds are more at risk than ever of being pushed out by Alt Ucits strategies within investors' allocations, according to K2 Advisors’ Brooks Ritchey.
Speaking at a roundtable event in London, Ritchey, who runs several funds at K2, including the Franklin K2 Alternative Strategies fund, said hedge fund-style strategies have edged their way up to the top of the pecking order.
'In the last 12 months, some of the bond markets have shown negative price appreciation, negative total return. For the first time in a while, investors are seeing that their bond portfolios are just not making money.
'Equities are making money, hedge funds are back in the game and bonds are left in third place. If the interest rate normalisation story continues then commodities will also do better next year.'
Ritchey highlighted the fact that the firm’s Ucits Sicav structure has raised $1.6 billion dollars, while its US (non Ucits) equivalent raised $1.1 billion in four years.
'It is over a lesser time period and it has raised more money. Interest rates in Europe have been low – so what do you do with your money if you don’t want to take equity volatility, maybe alpha is the new coupon.
'But bonds haven’t performed that well, alternatives have exactly the same volatility structure and similar, even better returns. Perhaps in the next year, the liquid alts space will attract some new bond friends.
'I don’t want to say we are in a golden era, but I think a silver era for hedge fund strategies may be returning. The monetary policy, the geopolitical situation, the currency movements are all things that haven’t been dynamic for many years now and they seem to be rotating,’ he added.
Alt Ucits here to stay
Also speaking at the event, Franklin Templeton’s head of alternatives, Peter Vincent (pictured below), said Ucits-compliant and onshore regulated vehicles are set to take up even more market share.
‘Alt Ucits funds have become the norm for many investors looking at the hedge fund space. Ucits has given hedge fund managers access to investors they wouldn’t have had before. The liquid alternatives movement is giving investors more choice.'
However, Vincent said many investors still have concerns when it comes to investing in liquid alternatives, such as liquidity and transparency.
'A lot of people still remember 2008, when some of these hedge type strategies didn’t live up to their liquidity commitments and ultimately it’s about control,' he said.
'Liquid alternatives give investors a lot more flexibility with the way they chose to optimise their portfolio. That is both from both a liquidity and fee perspective and I don’t think that’s a trend that is going away.'
Over the one year to the end of August 2017, the Franklin K2 Alternative Strategies fund returned 2.9% in euro terms in the fund of funds category. This compares with a sector average of 2% over the same time period.