Key Takeaways
- • Liquid alternatives in Europe grew from EUR36bn to EUR236bn between 2008 and 2014, according to a Deutsche Bank report (From Alternatives to Mainstream Part Two).
- • Vontobel's Harcourt boutique, led by Dr Jan Viebig, Head of Alternative Investments, has launched three UCITS-format Pure Strategy funds: Pure Momentum, Pure Dividend and Pure Premium.
- • Back-testing shows an equal one-third allocation across the three funds would have returned 7.20% annualised net of fees with 4.35% volatility between 2003 and 2013.
- • Viebig argues liquid alternatives charge roughly 1% management fee plus 10% performance fee versus upwards of 4% in fees for a typical long/short equity fund.
- • Viebig describes a "huge secular shift" of institutional money from traditional asset classes into liquid alternative strategies.
Summary
Liquid alternatives are among the fastest-growing segments of the asset management industry. According to a Deutsche Bank report released the previous September, titled From Alternatives to Mainstream Part Two, assets in Europe grew from EUR36bn in 2008 to EUR236bn in 2014. The product combines hedge fund-style dynamic trading strategies with the daily liquidity, transparency and regulatory oversight of mutual funds.
At Harcourt, the alternative investments boutique of Vontobel Asset Management, the Research-Driven Strategies (RDS) team headed by Dr Jan Viebig has developed three liquid alternative funds designed to offer exposure to strategy-specific risk premiums rather than traditional risk premiums such as equity risk. The Pure Strategy funds are Vontobel Fund – Pure Momentum Strategy, Vontobel Fund – Pure Dividend Strategy and Vontobel Fund – Pure Premium Strategy. The RDS team analysed more than 20 strategy-specific risk premiums and selected these three for their returns in benign markets and during periods of market stress.
Viebig attributes the growth to investor reluctance toward hedge funds, which he describes as expensive and insufficiently liquid or transparent, and to concern that rising volatility could erode wealth. He also stresses that the strategy determines the risk taken, and that liquid alternatives suit only liquid hedge fund strategies that fit the UCITS framework.
Back-testing indicates that an equal one-third allocation across the three Pure Strategy funds would have produced a 7.20% annualised return net of fees, with 4.35% volatility, over 2003 to 2013. Viebig says the approach combines time-series momentum, a quantitative trend-following method that takes long or short positions, with cross-sectional momentum, which ranks a universe of stocks such as the S&P 500 by positive or negative momentum. He argues the combination can produce stable returns over longer periods, including in choppy markets.
On fees, Viebig contrasts a typical long/short equity fund, which may charge upwards of 4%, with a liquid alternative charging about 1% management fee and a 10% performance fee. He characterises the shift of capital from traditional asset classes, which he views as no longer cheap, into liquid alternatives as a secular trend.
At Harcourt, the alternative investments boutique of Vontobel Asset Management, the Research-Driven Strategies (RDS) team headed by Dr Jan Viebig has developed three liquid alternative funds designed to offer exposure to strategy-specific risk premiums rather than traditional risk premiums such as equity risk. The Pure Strategy funds are Vontobel Fund – Pure Momentum Strategy, Vontobel Fund – Pure Dividend Strategy and Vontobel Fund – Pure Premium Strategy. The RDS team analysed more than 20 strategy-specific risk premiums and selected these three for their returns in benign markets and during periods of market stress.
Viebig attributes the growth to investor reluctance toward hedge funds, which he describes as expensive and insufficiently liquid or transparent, and to concern that rising volatility could erode wealth. He also stresses that the strategy determines the risk taken, and that liquid alternatives suit only liquid hedge fund strategies that fit the UCITS framework.
Back-testing indicates that an equal one-third allocation across the three Pure Strategy funds would have produced a 7.20% annualised return net of fees, with 4.35% volatility, over 2003 to 2013. Viebig says the approach combines time-series momentum, a quantitative trend-following method that takes long or short positions, with cross-sectional momentum, which ranks a universe of stocks such as the S&P 500 by positive or negative momentum. He argues the combination can produce stable returns over longer periods, including in choppy markets.
On fees, Viebig contrasts a typical long/short equity fund, which may charge upwards of 4%, with a liquid alternative charging about 1% management fee and a 10% performance fee. He characterises the shift of capital from traditional asset classes, which he views as no longer cheap, into liquid alternatives as a secular trend.
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