Opalesque Industry Update - A new report out from New York-based investment consultant Beachhead Capital Management shows that alternative multi-manager mutual funds underperform the HFRI Fund of Funds Index over time. Proponents of this type of liquid alternative often counter with the idea that lower fund fees make up for any losses on the performance side, but the data there is weak as well. The study looked at 32 funds that fit the alternative multi-manager mutual fund model for its study group. While the report authors note that the sample size too small to be definitively conclusive, the findings are interesting. In their analysis, Beachhead took an equally weighted portfolio of funds that have full year performance data and calculate the net of fee return. Those numbers were compared with the HFRI Fund of Funds Index. According to the data, "in every year, AMMFs underperformed the HFRIFOF index – on average by over 200 bps."
Based on the level of performance drag if mutual funds lose 200 bps or more, saving 100 bps on fees won't make up the difference. When broken down even further, according to the paper, hedge funds have returned on average 7.5% per year since 2012, whereas the liquid alts group has returned 4.5%. 2012 is the key year for comparison, as that is when the bulk of the mutual fund products were launched. Investors in the liquid products also paid 2.6% in fees and expenses on average - or almost half of the total return of the fund. |
Industry Updates
Study: Multi-manager liquid alts funds underperform traditional fund of funds
Monday, January 25, 2016
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