While equity volatility has been suppressed over the last few years, Natixis Investment Managers’ David Lafferty says there’s room for higher volatility levels in 2019, prompting Money Management to look into some top performing alternative funds to minimise risk.
Lafferty said the volatility spikes of January/February and October/December last year set a bar that “largely reflects a more appropriate base level of market uncertainty” going forward.
He also expects the market to begin suffering some geopolitical risk fatigue, but trade tariffs and tweets would start to lose their shock value.
“Even so, there is still plenty of room for higher volatility, especially if the economy falters more than we expect or if the Fed overtightens,” he said.
But while this might be the case, Lafferty said for the first time in several years, he wasn’t predicting a dramatic rise in volatility levels moving forward.
In light of this, Money Management, using data from FE Analytics, identified the top alternative funds with the highest Sharpe (risk to return) ratio for the year to 30 November 2018.
Alexander Credit Opportunities, which aims to achieve positive returns in both rising and falling markets, achieved a Sharpe ratio of 6.77, with returns of 5.52 per cent and volatility of only 0.59 per cent.
Perpetual’s Pure Credit Alpha sat in second place for the same time period, with Sharpe ratio of 5.00, having achieved 3.30 per cent returns at 0.36 per cent volatility.
Challengers Pension and Guaranteed Income funds also achieved high Sharpe ratios, and the Ardea Real Outcome Plus fund followed with a Sharpe ratio of 1.70m achieving returns of 1.70 per cent at 1.07 per cent volatility.
Among the top five alternative funds purely based on performance were Macquarie’s P/E Global FX Alpha fund, which returned 14.64 per cent, and Harvest Lane Asset Management’s Absolute Return fund, which achieved 13.51 per cent.
Bronte Capital Amalthea returned 11.11 per cent, Hunter Field International returned 10.20 per cent and Regal Australian Small Companies returned 8.74 per cent.
