EQIRA: Empirical and Quantitative Investment Research and Analysis

Hedge Funds Weekly: October 12, 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.

Highlights

  • Our factor-based estimates project that hedge funds gained 0.72% last week on profits from domestic and foreign equities
  • Hedge funds are now up 1.10% for the month and 0.48% for the year
  • 23 of the 30 strategies we follow posted positive performance
  • Most strategy groups rose; only macro strategies suffered
  • Risky assets performed exceptionally well, while safe-haven US Treasuries suffered
  • Emerging equities and oil were particularly strong
  • Value factors, emerging currencies, FX carry, and high yield spreads were among our top performing Market Factors
  • Although index returns are still preliminary, our September end-of-month hedge fund projections appear to have underestimated performance in most strategies

Global Hedge Fund Performance

  • Our factor-based estimates project that hedge funds gained 0.72% last week on profits from domestic and foreign equities
  • Hedge funds are now up 1.10% for the month and 0.48% for the year
  • Our factor-attribution analysis suggests positive contributions from equity beta (0.88%), the developed equity spread (0.28%), and alpha (0.12%)
  • It indicates negative contributions from equity size (-0.17%), equity country momentum (-0.16%), and equity value (-0.10%)
  • It estimates one week, month-to-date, and year-to-date alphas of 0.12%, -0.03%, and 0.68%, respectively

eqira_hf_retatt_1w_20151012

Global Benchmarks

  • Risky assets performed exceptionally well, while safe-haven US Treasuries suffered
  • Leaders: Latin American equities (9.30%), Emerging EMEA equities (9.11%), oil (8.91%)
  • Laggards: US Treasuries 10Y (-1.00%), US Treasuries 5Y (-0.57%), US Treasuries (-0.52%)
  • Equities: all major regions rose, with exceptionally strong performance in emerging equities
  • Bonds: US government securities performed poorly, while foreign securities, particularly those with credit risk, outperformed
  • Real Estate: performance was strong both domestically and abroad
  • Commodities: all sectors gained, but energy commodities showed major gains
  • Currencies: both developed and emerging currencies appreciated relative to the US dollar, but the emerging currency gain was abnormally large
  • Multi-asset: 60/40 and risk parity strategies gained worldwide, with 60/40 outperforming risk parity due to global bond underperformance

eqira_gb_20151012

eqira_gb_top_movers_20151012

Market Factors

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

  • Leaders: developed value spread (5.31%), US industrials spread (4.88%), emerging market currencies (4.74%)
  • Laggards: developed equity sector momentum (-7.13%), emerging market country trend following (-6.39%), developed real estate-equity spread (-5.32%)
  • Commodities: oil and broad commodities posted strong gains while momentum and trend following strategies suffered
  • Credit: high yield considerably outperformed investment grade both domestically and abroad
  • Equity: momentum and trend following strategies were among the week’s worst performing factors while industrials, materials, small capitalization, and value stocks outperformed
  • Fixed Income: US Treasuries underperformed, as did curve strategies, while non-corporate fixed income spreads and emerging market bonds outperformed
  • Foreign Exchange: emerging market currencies and carry strategies showed strong performance while momentum and value strategies posted heavy losses
  • Multi-Asset Class: momentum and trend following strategies suffered
  • Real Estate: developed market real estate securities significantly underperformed broad equity indexes
  • Risk: short volatility and variance strategies gained, but much less than equity indexes

eqira_mf_20151012

eqira_mf_top_movers_20151012

September 2015 Estimate Review

  • The indexes underlying our composite indexes have begun reporting returns, but the performance is preliminary and subject to change
  • As currently reported, we correctly predicted the direction of 28 of 30 strategies
  • We were within 25 basis points for eight indexes and within 50 basis points for 13
  • Our hit rate was above average, but our accuracy was below average
  • Our initial estimate of -1.63% for our broad hedge fund index differs from the current estimate of -1.11% by 0.52%, a larger difference than normal
  • 21 strategies performed better than we anticipated; eight performed worse
  • Most significant misses: Energy (4.06% better than expected), Healthcare (2.79% worse), and Latin America (1.69% worse)
  • Overall, our estimates resulted in a 71% reduction in variance relative to naïve forecasts of flat returns

eqira_hf_est_analysis_20151012

Connect With Us

Follow us on Twitter: @eqira
And on LinkedIn: Eqira