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Hedge funds (finally) benefiting from the search for alternatives

The renewed financial repression stemming from the round of extraordinary policy measures unveiled last year to mitigate the impacts of the Covid-19 pandemic spurred investors to take another look at alternative asset classes and investment strategies. EPFR-tracked Alternative Funds have recorded inflows 47 of the 61 weeks since the start of 2Q20. Over that period the assets managed by Alternative Funds increased by over a fifth.

 

 EPFR Hedge Fund 0628 1 

 

Hedge Funds tracked by EPFR did not, however, see flows take off until late last year. With cost cutting the initial response of many investors, who rotated from actively managed funds to collective investment trusts (CITs) or index funds that charge lower fees.

Interest in hedge funds has also been restrained by the broad boost that central bank liquidity and the post-pandemic global reflation story have given equity markets. Over the past 17 months Equity Mutual Funds tracked by EPFR have collectively outperformed Equity Hedge Funds. Since 4Q20 Equity ETFs have outperformed Equity Hedge Funds by a 3-to-2, margin, up over 27% versus 17%. 

 

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