Despite a strong equity market in 2013, investors shifted more than $40 billion of assets to liquid alternative mutual funds over the course of the year, and this doesn’t even include the $55 billion in assets that migrated into non-traditional bond mutual funds. The biggest winners with in the alternatives category, as defined by Morningstar, were long/short equity funds and multi-alternative funds.
The long/short equity category grew by $20.5 billion in assets over the year and increased its market share of mutual fund assets from 0.27% to 0.46%, a 70% jump in overall marketshare. The biggest winner within this category, in terms of asset flows, was the MainStay Marketfield Fund which grew by $13.4 billion – a growth rate of 306%. The average return for the category was 14.62%, while the MainStay Marketfield Fund (MFLDX) returned 16.9%.
Net asset flows within the primary sub-categories of the broader alternatives category were as follows (2013 Category Return):
- Long/Short Equity: +$20.5 billion
- Multi-alternative: +$9.6 billion
- Market Neutral: +$4.6 billion
- Bear Market: +$2.7 billion
- Managed Futures: +$2.5 billion
- Multi-currentcy: -$497 million
The multi-alternative category saw the entrance of several large asset managers over the course of the year, including Blackstone, Morgan Stanley, Dreyfus and Franklin Templeton, as well as a number of boutique manages such as Altegris, Collins Capital and Salient. The largest gainer in this category was the Blackstone Alternative Multi-Manager Fund which now stands at $1.1 billion in assets, most of which came from their partnership with Fidelity. The category returned 4.16% for the year.
The market neutral category, which typically has a very low beta to the market, returned 2.92% as a category for 2013 and was able to net $4.6 billion in net new assets over the year. Much of this flow is likely due to investors looking to reduce interest rate risk and re-allocating assets to strategies with similar risk profiles, but little or no interest rate risk. Market neutral funds typically fit this profile.
Despite turning in a slightly negative performance of the year (down 0.95%), managed futures funds continued to gather assets to the tune of $2.5 billion. While the category has struggled over the past several years, their diversification characteristics are a key selling point. Managed futures funds typically have little correlation with the equity markets over longer periods of time (3-5 years). However, in 2013, their correlation increased to 0.58 from their longer term average of 0.15 (1 is a perfect correlation, -1 is a perfect negative correlation), according to a recent Morningstar report.
Finally, bear market funds, despite being down 34.4% on the year, were able to garner $2.7 billion of assets as investors looked for ways to potentially hedge their portfolios for any potential downturn.
Source: Morningstar Direct U.S. Open-End Asset Flows Update