Absolute-Return-Study by Lupus alpha


Liquid alternatives beat equities, bonds and hedge funds in 2022 – despite outflows

Although UCITS-compliant hedge fund strategies suffered slight losses with an average performance of -1.49% in the full-year 2022, they still outperformed equities, bonds and unregulated hedge funds. Nevertheless, the segment also recorded significant outflows.


In 2022, liquid alternatives in Germany proved their worth in a challenging market environment, helping to diversify and limit losses in investor portfolios. Although they suffered slight losses with a performance of -1.49%, they fared considerably better than equities and bonds, and left unregulated hedge funds trailing in their wake. They also demonstrated their robustness in volatile markets with an average maximum loss of -10.38%.

Despite its comparatively strong performance in a difficult year for the capital markets, this investment segment recorded significant net outflows of EUR 17.56 billion. There are many different reasons for this. The rapid rise in interest rates and looming fears of a recession could be felt in fixed-income strategies in 2022, causing their market share to fall further, from roughly 40% as recently as 2020 to only around one-quarter of the market today. While short strategies that rely on declining markets delivered the best average performance over the full year, they were the weakest performers over five years and have lost more than a quarter of their investor funds over the past 12 months. The only strategy to record material net inflows of EUR 2.14 billion was Alt. Equity Market Neutral, which also made a positive contribution to returns.

The significant outflows in the evaluated class come as a surprise given its strong performance compared to equities and bonds. After all, liquid alternatives strategies made a significant contribution to diversifying portfolios and limiting losses at overall portfolio level amid a challenging market environment in 2022.


Number of funds increases in crisis year

After an initial increase at the midpoint of the year, the range of fund concepts on offer grew further to 767 funds (+5.9%). This growth was primarily driven by alternative concepts at +8.6%, while the number of absolute return concepts remained virtually unchanged from 2021 (+1.5%). Overall, 31 new funds were launched. The universe also grew as new funds were added to the Refinitiv database after receiving their licences for distribution in Germany, for example. Based on the number of concepts, alternative strategies asserted their dominance further with 493 funds (64%), pulling further ahead of absolute return concepts with 274 funds (36%).


Large funds remain the dominant providers

The picture has hardly changed from our 2021 analysis, with large funds still dominating the market. The top 5% of funds manage more than twice as much capital as the bottom 80%. As a result, the market continues to be dominated by a few large providers. This trend is even more pronounced when the market is divided into its upper and lower halves, with the top 50% of funds accounting for 94.5% of capital in the segment while the lower half of funds manage barely 5% of all assets.


Liquid alternative strategies leave other asset classes trailing in their wake

Liquid alternatives demonstrated their strengths compared to other asset classes during the challenging trading year of 2022. Although they ended the year with slightly negative performance of -1.49%, they significantly outperformed global equities, government and corporate bonds and unregulated hedge funds. Often managed in an extremely flexible way, many of these strategies are less dependent on the direction of the market, which means they can buck the general market trend and generate a profit even in falling markets. As a result, UCITS-compliant hedge fund strategies underscored their advantages for portfolio diversification and kept losses at the overall portfolio level to a minimum. This performance contrasts with the considerable outflows from the evaluated investment universe.


Yield difference to equities falls in the medium term

Both liquid alternatives strategies and equities deliver positive returns in the medium to long term. While liquid alternatives are almost on a par with unregulated hedge funds over three years, they leave these funds in their wake over five years. However, global and European equity investments beat all other asset classes over a longer observation period. The performance difference between liquid alternatives and equities shrank significantly over the past year due to weak equity performance.

Although the bond markets are considered to be safer and less prone to fluctuations, they are the worst performers of all of the evaluated asset classes over both three and five years, with considerable negative returns. However, this is also linked to the sharp rise in interest rates and the exceptionally high price losses associated with this during 2022.

The downloadable white paper provides more data in detail, including a breakdown of the performance of each strategy.


About the Study

Since 2008, Lupus alpha has been evaluating the universe of absolute return and alternative funds on the basis of data from Refinitiv. The Study covers UCITS-compliant funds with an active management approach that are authorised for distribution in Germany. The Study focuses on market size, development and composition, performance in the investment segment and individual strategies, as well as key risk figures. It evaluates the three levels of aggregation – the overall universe, strategies within the universe, and funds within the strategies – and distinguishes between 15 strategies. The Alt. Long/Short Equity strategy, for example, is made up of 106 funds.


About Lupus alpha
As an owner-managed, independent asset management company, Lupus alpha has stood for innovative, specialized investment solutions for more than 20 years. Lupus alpha is one of the pioneers for European small & mid caps in Germany and one of the leading providers of volatility strategies as well as securitized corporate loans (CLO). The specialized product range is rounded off by global convertible bond strategies. The company manages a volume of around EUR 13.5 billion for institutional and wholesale investors.
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Disclaimer: This document serves as a study for general information purposes and is not mandatory in accordance with investment law. The information presented does not constitute an invitation to buy or sell or investment advice. It does not contain all key information required to make important economic decisions and may differ from information and estimates provided by other sources, market participants or studies. We accept no liability for the accuracy, completeness or topicality of this study. All statements are based on our assessment of the present legal and tax situation. All opinions reflect the current views of the Company and can be changed without prior notice.


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Pia Kater
Press officer, Communications
+49 69 / 36 50 58 - 7401
to our press area