EQIRA: Empirical and Quantitative Investment Research and Analysis

Hedge Funds Weekly: January 4, 2016

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 0.02% last week as most major asset classes declined
  • Only 13 of the 30 hedge fund strategies we track earned positive returns
  • There were very few bright spots as global equities, bonds, real estate and commodities all declined
  • Of our entire universe of regional and sector equity benchmarks only developed Asia-Pacific equities posted a gain
  • US high yield and emerging market bonds notched modest gains, but most fixed income assets fell
  • Oil continued its long-term slide
  • Both developed and emerging currencies depreciated relative to the US dollar
  • We will begin assessing our December hedge fund performance estimates next week once more of the underlying indexes have released returns

Global Hedge Fund Performance

  • Our factor-based estimates project that hedge funds lost 0.02% last week as most major asset classes declined
  • With less than one full trading day having passed in 2016, our model shows hedge funds are up 0.03% for the month and year
  • Our factor-attribution analysis suggests positive weekly contributions from equity size (0.14%), the spread between developed market and US equities (0.11%) and equity value (0.02%)
  • It indicates negative contributions from equity beta (‐0.22%), alpha (‐0.05%) and the spread between emerging market and developed market equities (‐0.07%)
  • It estimates weekly, month‐to‐date and year‐to‐date alphas of ‐0.05%, 0.02% and 0.02%, respectively

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Global Benchmarks

  • There were very few bright spots this week as global equities, bonds, real estate and commodities all declined
  • Leaders: developed Asia-Pacific equities (1.62%), US high yield bonds (0.40%) and US REITs (0.40%)
  • Laggards: oil (‐2.77%), US energy equities (‐2.38%) and emerging EMEA equities (‐2.21%)
  • Equities: of our entire universe of regional and sector benchmarks only developed Asia-Pacific equities posted a gain
  • Bonds: emerging market bonds and US high yield bonds notched modest gains, but all other benchmarks fell
  • Real Estate: US REITs rose, but foreign real estate performance pushed global returns below zero
  • Commodities: oil continued its long-term slide while precious metals also posted outsized losses
  • Currencies: both developed and emerging currencies depreciated relative to the US dollar
  • Multi‐asset: bond underperformance pushed risk parity strategies below 60/40 as all four of our balanced benchmarks fell

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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: emerging market equity size (2.48%), developed market equity size (2.22%) and the spread between developed market Asia-Pacific equities and developed market equities (2.04%)
  • Laggards: US equity value (‐1.68%), the spread between global and US inflation-linked securities (‐1.65%) and the spread between developed market Europe equities and developed market equities (‐1.55%)
  • Commodities: very little worked as both traditional and alternative strategies fell
  • Credit: high yield outperformed investment grade worldwide
  • Equity: value factors declined both domestically and abroad; developed equities outperformed US and emerging market equities
  • Fixed Income: global inflation‐linked securities lagged US inflation-linked securities while longer-dated Treasuries fell relative to short-dated Treasuries
  • Foreign Exchange: foreign currencies depreciated relative to the US dollar, while carry, momentum and value strategies rose
  • Multi‐Asset Class: all three of our momentum and trend following factors posted modest gains
  • Real Estate: US REITs outpaced equities by a significant margin
  • Risk: each of our other short risk strategies fell, with VIX term structure realizing the largest loss

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December 2015 Estimate Review

Only a handful of indexes have reported preliminary December returns. We will begin analyzing our month-end hedge fund performance estimates next week.

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