Q3 2022 13F Alternatives Insights

This year’s inflation and the response from central banks has been tough for many publicly investable markets, and a headwind for the standard 60/40 portfolio mix. This has increased the case for alternatives across all investment vehicles: funds, ETFs and interval closed end and traditional LP structures.

In general, alts can be labeled as any strategy that offers returns uncorrelated to the stock and bond market and should be yielding diversification benefits. The definition seems simple, but as these solutions come to market, many allocators have realized it is not that simple.  Today, thousands of unique strategies like private equity, real assets, private “everything”, hedge funds, tactical asset allocation, thematic and so on all have made claims to offer uncorrelated returns and all compete for capital from allocators. 

At the end of the day, the goal for many allocators in adding alts to a 60/40 construction, in whatever percentage, is lower the correlation to that blend and to remember that lower correlations do not always equal total return. 

Source: JP Morgan Asset Management

In reviewing the Q3 13F filings, it is clear that allocators continue to add to these strategies and are embracing the democratization of Alts via many vehicles. As this continues, we can already access a very large sub–set of Alts via ETFs and ‘40 act funds. While ETFs have attempted to tackle each asset class for investors, the liquidity requirements of ETFs have made them usually more suitable in areas that trade frequently like derivatives, stocks, and bonds. Because of that liquidity requirement, some areas such as real estate subsectors, infrastructure and private equity/credit have not seen much ETF development.  

Looking at Alts product creation from asset managers, ETFs have seen more innovation over mutual funds seeing a 40% increase in launches since the beginning of 2021 VS a 4% increase in mutual funds.  Looking at the asset flow growth via the 13Fs we have seen a 12% increase in the asset base of Alts ETFs.  But when we look at the reported asset base growth in Alts mutual funds, it is eye opening with a 44% increase over the period.

Why the wide dispersion in product growth and AUM between the two?  The 13 F filings in MarketPlace showed us that allocators are using alts ETFs mainly for tactical exposure and enhanced income strategies through Q3. Whereas mutual fund formats are being used for longer term allocation in multi strat and long/short or market neutral strategies.

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Written By: Gui Costin, Founder, CEO

Gui Costin is the Founder and CEO of Dakota.


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