EQIRA: Empirical and Quantitative Investment Research and Analysis

Hedge Funds Weekly: February 8, 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 0.71% last week as equities continued to fall
  • Hedge funds are now down 2.35% for the year
  • Only six of the 30 hedge fund strategies we track earned positive returns
  • Equities declined globally, but U.S. investors with unhedged currency exposure saw foreign losses lessened by a declining dollar
  • Government bonds performed well both domestically and abroad, but corporate bonds lagged
  • Oil and other energy commodities continued to slide
  • Developed currencies rallied significantly against the U.S. dollar, but emerging currencies gained only modestly
  • Momentum and trend following strategies posted mixed performance across different asset classes
  • We will begin analyzing our January hedge fund index return estimates next week

Global Hedge Fund Performance

  • Our factor-based estimates project that hedge funds lost 0.71% last week as equities continued to fall
  • Hedge funds are now down 2.35% for the year
  • Our factor-attribution analysis suggests positive weekly contributions from the spread between developed market equities and U.S. equities (0.33%), the spread between listed private equities and the broad market (0.08%) and equity size (0.07%)
  • It indicates negative contributions from equity beta (-0.82%), equity value (‐0.20%) and developed market currencies (‐0.10%)
  • It estimates weekly and year-to-date alpha of -0.01% and 0.88%, respectively

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Global Benchmarks

  • Oil and equities continued to slide, while a falling U.S. dollar lifted precious metals and foreign government bonds
  • Leaders: U.S. materials equities (3.81%), precious metals (3.72%) and gold (3.71%)
  • Laggards: oil (‐8.12%), energy commodities (-6.50%) and U.S. information technology equities (-5.40%)
  • Equities: equities declined globally, but U.S. investors with unhedged currency exposure saw foreign losses lessened by a declining dollar
  • Bonds: government bonds performed well both domestically and abroad
  • Real Estate: REITs joined in equity losses
  • Commodities: oil and other energy commodities suffered once again
  • Currencies: developed currencies rallied significantly against the U.S. dollar, but emerging currencies gained only modestly
  • Multi‐asset: risk parity strategies outperformed 60/40, and global risk parity substantially outperformed due to its currency exposure

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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: the spread between U.S. materials equities and the broad market (6.96%), equity value (4.95%) and equity index value (4.33%)
  • Laggards: 1-year U.S. equity sector momentum (‐4.11%), 1-year U.S. equity momentum (‐3.65%) and the spread between U.S. consumer discretionary equities and the broad market (‐3.55%)
  • Commodities: oil plummeted, but momentum and trend following strategies gained as a result
  • Credit: corporate bonds again trailed government bonds as credit spreads widened
  • Equity: sector performance was mixed while momentum and trend following strategies generally underperformed
  • Fixed Income: government bonds, particularly those of foreign governments, gained as the U.S. dollar fell
  • Foreign Exchange: the dollar fell significantly relative to other developed currencies
  • Multi‐Asset Class: all three of our momentum and trend following factors produced profits
  • Real Estate: real estate outperformed equities worldwide
  • Risk: short volatility and variance strategies rose, but our volatility term structure factor declined

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January 2016 Estimate Review

We will begin analyzing our January hedge fund index return estimates next week once more of the indexes underlying our composite indexes have reported returns.

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