Asset flows into, and out of, liquid alternatives continued their year-long trend in November. Of the six alternative strategy categories, only two (managed futures and multi-alternative funds) saw inflows, while the remaining four continued their string of outflows. Two of three alternative asset classes saw inflows (volatility and currency funds), while commodity funds had their worst month of the year with nearly $1.7 billion of net outflows.
Overall Asset Flows
Overall asset flows to both mutual funds and ETFs, as reported by Morningstar, for the month of November totaled -$4.1 billion. All categories of actively managed funds saw net outflows except for municipal bonds and alternative funds. While passively managed funds, including alternatives, saw net positive inflows overall, it was not enough to make up for the outflows from actively managed funds.
Alternative Fund Asset Flows
Year to date, the primary winners of the asset flow race have been managed futures funds and multi-alternative funds. Both categories serve a specific purpose: Managed futures funds aim to provide a more pure form of diversification to a portfolio with returns that are generally uncorrelated to the equity and bond markets, and also have the benefit of performing well (generally) in crisis environments such as 2008.
On the other hand, multi-alternative funds give investors a one-stop shop for making an allocation to alternatives. These funds allocate across multiple alternative strategies and/or alternative asset classes, and many of the funds are run by professional allocators (i.e. the portfolio managers focus on finding and allocating assets to alternative investment managers).
November flows, as seen below, are similar to the picture we have seen for most of the year with investors fleeing non-traditional bonds, commodities and long/short equity funds:
The one-year picture look similar to the monthly flows data with non-traditional bonds leading the way on outflows and multi-alternative funds picking up the most net new assets:
The 12-month growth rate tells a bit of a different story. With managed futures funds coming off of a lower base of assets, their growth rate leads the pack, while bear market and market neutral funds have suffered the largest negative growth rates:
Despite the persistent outflows from non-traditional bond funds, they still remain the largest category of alternative mutual funds and ETFs with total assets of $159 billion. This is followed by commodity funds at $70 billion, multi-alternative funds at $54 billion and long/short equity funds at $51 billion. Market neutral funds round out the top 5 spots with $25 billion, just $1 billion ahead of managed futures funds. These top five rankings were the same at the beginning of the year, except for a switch in places between long/short equity and multi-alternative funds.
Note: All asset flow data is sourced from Morningstar’s monthly asset flows report and includes both mutual funds and exchange traded funds.
Past performance does not necessarily predict future results.
Meili Zeng contributed to this article.