Liquid alternatives are showing strong performance amid the Covid-19 environment.  According to a new report from Lyxor Asset Management, undertaking for collective investment in transferable securities investments (UCITS) employing alternative strategies are doing particularly well.  Specifically, these investments are performing as designed, with their diversification benefits affording investors and their financial advisors the lower volatility and downside protection inherent in their construction.

Against the backdrop of the World Index dropping -20.94 percent in the first quarter, the Liquid Alternatives UCITS index was down only -7.49 percent, with the variance even greater to the Liquid Alts benefit moving through Q2. Among the investments that did particularly are long-short equity funds, merger arb, discretionary equity and relative value.  

According to European Head of Hedge Fund Research Bernadette Busquere, credit markets will be attractive due to inefficiencies, equities will be valuable due to stabilizing companies, and relative value will be optimized due to currency and fixed income.  She states that UCITS will continue to be sought after in future years as they will provide more options for capital investments in liquid structure.  Liquid alternative strategies will continue to grow as investors seek downside protection and avoid volatility.  

Chief client officer of Lyxor Asset Management Nathan Benzaken stated “We believe allocating to liquid alternatives makes even more sense in the current context.  In fact, against all odds, with major indices rallying back to near pre-crisis levels, it may even be more relevant now to consider building or adding to a diversification portfolio.  Despite risks and uncertainties remaining high, the coronavirus crisis has created major dislocations that can be monetised by hedge fund managers.”  Ultimately, this is good news for the liquid alternatives industry.  The prospects of stron diversification benefits going forward for investors remain very strong with liquid alternatives continuing to shine in today’s unprecendented volatility.