EQIRA: Empirical and Quantitative Investment Research and Analysis

Hedge Funds Weekly: December 7, 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 lost 0.13% last week from mixed factor performance
  • Hedge funds are now down 0.10% for the month and up 0.96% for the year
  • Only nine of the 30 hedge fund strategies we track earned positive returns
  • Poor equity performance drove down most equity sensitive strategies
  • Non-energy commodities rebounded from last week’s declines
  • MLPs were crushed amidst mediocre worldwide equity performance
  • Developed currencies appreciated meaningfully relative to the US dollar, boosting the returns of non-dollar assets
  • Momentum strategies gained in commodities and equities, but declined in FX and across asset classes
  • We will begin evaluating our end-of-month hedge fund return estimates next week once enough indexes have reported November returns

Global Hedge Fund Performance

  • Our factor-based estimates project that hedge funds lost 0.13% last week from mixed factor performance
  • Hedge funds are now down 0.10% for the month and up 0.96% for the year
  • Our factor-attribution analysis suggests positive contributions from equity size (0.14%), commodity momentum (0.07%), and equity sector momentum (0.03%)
  • It indicates negative contributions from the spread between MLPs and US equities (-0.08%), alpha (-0.08%), and the spread between developed market equities and US equities (-0.06%)
  • It estimates month-to-date and year-to-date alphas of -0.07%, and 0.33%, respectively

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Global Benchmarks

  • Non-energy commodities rebounded from last week’s declines while currency gains helped offset foreign equity losses
  • Leaders: agricultural commodities (2.96%), precious metals (2.78%), and gold (2.64%)
  • Laggards: US MLPs (-11.33%), Latin America equity (-3.76%), and emerging market equity (-2.00%)
  • Equities: MLPs were crushed amidst mediocre worldwide equity performance
  • Bonds: foreign government bonds rode currency gains to positive returns while most other fixed income benchmarks declined
  • Real Estate: real estate securities declined both domestically and abroad
  • Commodities: energy commodities suffered yet again, but other sectors notched healthy returns
  • Currencies: developed currencies appreciated meaningfully relative to the US dollar
  • Multi-asset: 60/40 and risk parity strategies posted mixed, but muted returns

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Market Factors

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

  • Leaders: developed equity size (3.44%), commodity 1-year sector momentum (2.92%), and commodity 1-month momentum (2.39%)
  • Laggards: the US MLP-REIT spread (-4.37%), European 10Y-1Y government bond spread (-3.78%), and US equity size (-3.38%)
  • Commodities: energy underperformed, but momentum and term structure strategies prospered
  • Credit: most credit strategies declined as investors favored lower risk securities
  • Equity: MLPs woefully underperformed, while momentum strategies and foreign small caps gained
  • Fixed Income: developed market government bonds outperformed US Treasuries, but the gain was mostly a result of currency gains
  • Foreign Exchange: momentum and value strategies posted larger-than-average losses
  • Multi-Asset Class: all three of our momentum and trend following factors declined
  • Real Estate: performance was mixed, but US REITs trailed foreign real estate
  • Risk: short variance strategies fell while short volatility strategies gained

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November 2015 Estimate Review

Too few indexes have reported November returns to conduct our analysis. We will begin evaluating our November estimates next week.

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