Key Takeaways
- • Marketfield long-short equity fund exemplifies alternative fund underperformance: After delivering exceptional returns from 2008–2013 (including 31% in 2009 versus S&P 500 gains), the fund lost 12.3% in 2014 while the S&P 500 gained 13.7%, then lost 8.3% in 2015 and 3.3% in 2016 as broader equities gained 1.4% and 12% respectively.
- • Asset flows reversed sharply following performance deterioration: Marketfield attracted $13.2 billion in inflows during 2013 at its peak but experienced outflows of $7.8 billion in 2014, $6.3 billion in 2015, and $1.6 billion in 2016 as MainStay (the acquiring firm) made a hasty retreat from the strategy.
- • High fees and complexity persist despite poor risk-adjusted returns: Alternative funds charge premium fees relative to other fund categories, marketed on the promise of noncorrelated assets that deliver positive returns during bear markets—yet many have failed to deliver this core value proposition to institutional and retail investors.
- • Structural failure rate demonstrates systemic underperformance: Morningstar research indicates 75% of alternative fund launches since 2015 have failed to last ten years, with only 341 of 1,345 alternative funds existing today, indicating a widespread mortality rate across the category.
Summary
The alternative fund industry has substantially disappointed investors despite commanding premium fee structures and attracting billions in capital based on promises of noncorrelated returns and portfolio ballast during market downturns. Marketfield, a long-short equity fund blending macro and bottom-up stock selection, serves as a cautionary case study. The fund delivered remarkable outperformance from 2008 through 2013, generating a 31% return in 2009 versus the S&P 500's gains and consistently beating peers annually through 2013. Morningstar rated the fund Bronze from May 2012 through October 2014 based on this track record.
The fund's appeal proved unsustainable once performance deteriorated. Growing from less than $1.0 billion in 2011, Marketfield accumulated $3.3 billion in 2012 and $13.2 billion in 2013 following the fund's acquisition by MainStay, which introduced higher-cost share classes despite the inflating asset base. However, 2014 marked a sharp reversal: the fund declined 12.3% while the S&P 500 advanced 13.7%. Subsequent years worsened this divergence—2015 saw a loss of 8.3% against the S&P 500's 1.4% gain, and 2016 produced a 3.3% loss as equities advanced 12%. This pattern directly contradicted the fund's core thesis of delivering noncorrelated positive returns during equity weakness. Morningstar downgraded the fund to Neutral in November 2014.
Capital flight followed performance deterioration with mechanical precision. Marketfield shed $7.8 billion in 2014, $6.3 billion in 2015, and $1.6 billion in 2016 as institutional and retail investors reversed course. The timing proved particularly damaging: investors largely missed the fund's strong 2008–2013 performance during early growth phases, then capitulated precisely at the bottom, missing the rebound that materialized in 2017. This dynamic reflects a broader industry challenge where alternative funds, despite charging fees substantially higher than traditional strategies, have failed to deliver the diversification and downside protection that justified their premium cost structures to institutional investors and advisors.
The fund's appeal proved unsustainable once performance deteriorated. Growing from less than $1.0 billion in 2011, Marketfield accumulated $3.3 billion in 2012 and $13.2 billion in 2013 following the fund's acquisition by MainStay, which introduced higher-cost share classes despite the inflating asset base. However, 2014 marked a sharp reversal: the fund declined 12.3% while the S&P 500 advanced 13.7%. Subsequent years worsened this divergence—2015 saw a loss of 8.3% against the S&P 500's 1.4% gain, and 2016 produced a 3.3% loss as equities advanced 12%. This pattern directly contradicted the fund's core thesis of delivering noncorrelated positive returns during equity weakness. Morningstar downgraded the fund to Neutral in November 2014.
Capital flight followed performance deterioration with mechanical precision. Marketfield shed $7.8 billion in 2014, $6.3 billion in 2015, and $1.6 billion in 2016 as institutional and retail investors reversed course. The timing proved particularly damaging: investors largely missed the fund's strong 2008–2013 performance during early growth phases, then capitulated precisely at the bottom, missing the rebound that materialized in 2017. This dynamic reflects a broader industry challenge where alternative funds, despite charging fees substantially higher than traditional strategies, have failed to deliver the diversification and downside protection that justified their premium cost structures to institutional investors and advisors.
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