EQIRA: Empirical and Quantitative Investment Research and Analysis

Hedge Funds Weekly: October 5, 2015

The following is an excerpt from our Hedge Funds Weekly report, which is available in the clients section. If you are not yet a client, please request access.


  • Our factor-based estimates project that hedge funds declined 0.12% last week as losses from alpha, high yield spreads, and merger arbitrage strategies overwhelmed gains from equity
  • Hedge funds are now up 0.45% month-to-date and down 0.27% year-to-date
  • Only 13 of the 30 strategies we analyze posted positive performance, and most of the winners were net long equity
  • Relative value and event driven strategies underperformed
  • Equity, government bonds, and real estate performed well globally, while commodities and high yield declined
  • Sovereign fixed income spreads were our best performing factors, while credit spreads were our worst
  • Aside from commodities, which had universally poor results, most asset classes notched mixed factor performance

Hedge Fund Performance

Our factor-based estimates project that hedge funds gave up 0.12% last week as losses from alpha, high yield spreads, and merger arbitrage strategies overwhelmed gains from equity. Hedge funds’ aggregate month-to-date and year-to-date performance now stands at 0.45% and -0.27%, respectively.

Our factor-attribution analysis suggests that a 19 basis point alpha decline, along with losses from several other factors, offset gains of 0.22% from equity beta exposure and 0.07% from emerging equity.


Global Benchmarks

Outside of commodities, it was a near universal up week for our global benchmark indexes. US equities gained 0.83%, while developed equities rose 0.78% and emerging equities added 1.94%. Although US small cap stocks lost 0.63%, large caps, growth stocks, and value stocks each added between 0.62% and 1.07%. All US sectors except financials and telecom gained. Even MLPs, losers of more than 16% last month, managed to pull out a profit, increasing 3.29% to finish the week as our top performing benchmark.

Domestic Treasury bonds and foreign developed government bonds performed well. High yield suffered worldwide, however, losing 1.55% in the US and 0.68% internationally.

Real estate again performed strongly, gaining 1.66% domestically and 1.03% overseas. Foreign currencies reversed their recent trend as developed currencies appreciated 0.22% relative to the US dollar while emerging currencies rose 0.48%.

Commodities lost 0.92% as energy commodities declined 1.65% and precious metals fell 0.47%. Not all commodities were losers, however. Agricultural commodities and base metals climbed 0.84% and 0.72%, respectively.

All of our multi-asset class benchmarks rose. Our global 60/40 and risk parity indexes increased 0.99% and 2.09%, respectively. The US versions underperformed slightly, gaining 0.77% and 2.06%.



Market Factors

Note: we report factor performance using excess returns risk-adjusted to an expected annual standard deviation of 10%.

Sovereign fixed income had a very strong week as US Treasuries gained 2.38% risk-adjusted and European 10-year government bonds outpaced European 1-year government bonds by 2.71%. Fixed income products with embedded credit risk, however, did not keep pace, as our aggregate US index underperformed Treasuries by 2.25%. Medium-term and long-term investment grade bond spreads proved to be our poorest performing factors of the week as 5-year US investment grade underperformed 5-year Treasuries by 3.31% and 10-years underperformed by 3.10%. US high yield bonds underperformed investment grade bonds by an additional 3.02%.

Our commodity factors performed poorly across the board, with commodity beta, momentum, trend following, and term structure strategies all losing value.

Equities were mixed. While the US market gained as a whole, financials and telecom stocks lagged and small caps meaningfully underperformed large caps. Momentum and trend following strategies performed poorly domestically and among developed countries.

Foreign exchange performance was modest, as both developed and emerging currencies gained relative to the dollar. FX momentum lost 1.10%.

Real estate securities outperformed the broad equity market in the US, but underperformed internationally.

Multi-asset class momentum and trend following strategies posted mixed performance, as did short volatility and variance strategies.


September 2015 Estimate Review

We will begin analyzing our September month-end hedge fund performance estimates next week once enough index providers have begun announcing returns.

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