Best alternatives for risk-adjusted returns
With alternative investments gaining traction for their diversification properties, Money Management used FE Analytics to find the best alternative funds for risk-adjusted returns.
Alternative investments have a long history of use by institutional investors who seek to produce strong, risk-adjusted returns that are decorrelated from equity and fixed oncome markets. But, they’re also being picked up by mum and dad investors, specifically in retirement portfolios where investors are highly risk-intolerant.
The top alternative fund over the last five years, as per FE Analytics, is the Alexander Credit Opportunities fund, with annualised returns of 7.23 per cent and volatility of 0.69 per cent, to make an overall Sharpe ratio of 5.44.
The ratio is seven times the sector average of 0.69, and almost doubles the next-best fund, Perpetual’s Pure Credit Alpha fund.
The Perpetual Pure Credit Alpha fund returned 6.57 per cent annually across five years, with a volatility of 1.02 per cent to produce a Sharpe ratio of 3.00.
Ellerston Australian Market Neutral and Harvest Lane Asset Management Absolute Return followed with Sharpe ratios of 0.75 and 0.74 respectively.
This compares to the top Aussie broad-cap equity fund, SGH Australia Plus, which had a Sharpe ratio of 1.35.
The results aptly highlight what portfolio managers of alternative funds tend to stress, which is that alternatives have the ability to preserve capital due and reduce portfolio risk.
The chart below shows the performance of the top four alternative funds for the five years to last months end as compared to the sector average.
AUTHOR
Anastasia Santoreneos
Recommended for you
Outflows from an Australian private markets fund manager have caused FUM at Pacific Current to decline by $1 billion in the last quarter.
Former RIAA chief executive Simon O’Connor has joined the ethical advisory panel at U Ethical Investors.
Financial services leaders are “all cashed up with nowhere to grow” when it comes to M&A activity, according to Deloitte, with 90 per cent saying they have strong balance sheets ready for an acquisition.
As fund managers are urged to diversify their product ranges, they are finding a faster way to do this is via an acquisition of existing firms but experts say it is not without potential culture clashes.
