SINGAPORE (July 11): When global financial markets dived in the immediate aftermath of Brexit, alternative funds proved resilient. From June 23 onwards, the S&P 500 index closed 5.3% lower at its worst point while in Europe, Germany’s DAX and France’s CAC indices fell 9.6% and 10.8%, respectively. In contrast, alternatives had materially smaller falls than worldwide equity indices (see charts below) in the same period. Some funds even registered gains.

Among US dollar-based funds, at worst was the 3.9% fall in the $924 million PineBridge Glbl Dyn Asset Allc Y fund which was less severe than the S&P 500’s drop. Meanwhile, the $2.3 billion Schroder ISF Strategic Bd A Acc fund managed the best performance by staying flat.

Euro-based alternatives performed even better. The $209 million Seeyond Equity Vol Strategies I/A EUR and $8.8 billion JPMorgan Global Macro Opps A (acc) EUR funds were stand outs. Both funds actually closed 4.1% and 2.1% higher on June 27 while European indices suffered double-digit declines. The JPMorgan fund has since added to those gains while the DAX and CAC indices are still in the red.

Investors worldwide have piled nearly US$610 billion into alternatives (as at end-May) since the 2008 global financial crisis, according to data from Morningstar Direct. These funds offer exposure to hedge fund-like strategies that aim to minimise downside risks, protect capital and make positive returns in any market condition.

There have been two earlier periods of market stress where alternatives have also proved a hedge against downside volatility. This was in August 2015 and February 2016.

That said, investors seeking outsized gains rather than insurance might consider other asset classes. Over one year, only the JPMorgan Global Macro fund is making money with annualised returns of 3.9%.

Find out more about alternative funds and whether they are a worthwhile investment in Personal Wealth (July 4).