Of course, the credit crisis was something of a once-in-a-lifetime event (we hope), but many of the so-called alternative asset classes remain highly correlated and have hardly delivered stellar returns over the past three years.
During that time, the FTSE All-Share has climbed 52%, while funds in the Sterling Corporate Bond sector are up 37% in total return terms. In contrast, UK property funds could only climb 34% while the HFRI fund of hedge fund indices (Strategic, Diversified and Conservative) all disappointed with less than 5% growth.
Still, according to the latest poll from Barings, a large number of UK pension schemes have been increasing their exposure to alternatives in recent months.
Need to diversify
Where exactly they are investing is not defined beyond “property, hedge funds, private equity etc”, though it is clear that the need to increase diversification is great in these volatile times. To underline the point, multi-asset funds are also proving very popular with two-thirds of the poll’s respondents investing in targeted return or diversified growth strategies.
The institutional world is not something I’m entirely engaged with, though a revival in the popularity of hedge funds would be welcomed by many, I’m sure.
As for the other leading alternatives, property and private equity have their star performers, though both asset classes continue to be weighed down by concerns about liquidity.
Keener on caution
Commodities too fit under the alternatives banner though, anecdotally at least, the professional investors I have spoke with recently appear keener to stick with gold than they do trade within the more volatile energy sectors.
Caution is the byword here and, as the growth of multi-asset strategies shows, investors of all types – both retail and institutional – often appear keener to spread risk than invest with much real conviction for growth.
