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Capacity constraints hit local market-neutral funds

The ability for investors to make a portfolio allocation to managed funds offering market-neutral strategies is reducing, according to Zenith Investment Partners.

The forecast comes as a result of the research house’s latest market-neutral sector review.

“Of the Australian market-neutral funds which are rated recommended or above by Zenith, only around $1.2 billion of available capacity remains across two funds as at 31 December 2016,” Zenith market-neutral sector lead analyst Justin Tay said.

“With the strong levels of funds under management growth experienced by the sector in recent years, Zenith has projected that this capacity will be fully exhausted by mid-2018.”

Tay pointed out the predicament is unsurprising considering managers in this sector have delivered strong performance in the recent past and possess differentiated risk characteristics to other investment strategies.

While capacity constraints are currently present in the sector, he said new investment opportunities are opening up in the market-neutral sector.

“Over the past two years, we’ve observed a number of globally-orientated market-neutral strategies becoming available to Australian investors,” he said, adding new ratings have been initiated.

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