EQIRA: Empirical and Quantitative Investment Research and Analysis

Hedge Funds Weekly: April 04, 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 added 0.32% last week as equity and short volatility exposures lifted returns
  • Hedge funds are now down 0.18% for the month and down 0.69% for the year
  • All but four of the 30 hedge fund strategies we track earned positive returns
  • We currently project that hedge funds returned 1.82% in March, 0.20% more than our initial estimate of 1.62%
  • Oil extended its losses, but most risk assets worldwide posted gains
  • Equity beta and size factors rose, but value strategies lagged
  • All of our bond benchmarks rose, led by 5-year Treasuries and inflation-linked securities
  • Commodity betas fell, but momentum, trend following and term structure strategies rose
  • Foreign currencies rallied against the dollar
  • Option writing and short volatility strategies produced healthy gains
  • Trend following and momentum were losing strategies in most asset classes

Global Hedge Fund Performance

  • Our factor-based estimates project that hedge funds added 0.32% last week as equity and short volatility exposures lifted returns
  • Hedge funds are now down 0.18% for the month and down 0.69% for the year
  • Our factor attribution analysis suggests positive weekly contributions from equity beta (0.42%), short volatility (0.12%) and equity size (0.09%)
  • It indicates negative weekly contributions from the spread between developed market equities and U.S. equities (-0.30%), oil beta (-0.05%) and high yield credit spreads (-0.05%)
  • It estimates weekly, month-to-date and year-to-date alphas of 0.00%, 0.01% and 0.05%, respectively

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Strategy Performance

  • All but four of the 30 hedge fund strategies we track earned positive returns
  • Leaders: Healthcare (1.70%), Latin America (1.49%) and Technology (1.11%)
  • Laggards: Equity Short-Bias (-0.82%), Asia (-0.65%) and Commodities (-0.21%)
  • North American funds outperformed both Asian and European funds
  • Equity beta was the most significant factor driving strategy returns
  • Alpha leaders: Equity Short-Bias (0.54%), Healthcare (0.41%) and Managed Futures (0.29%)
  • Alpha laggards: Energy (-0.55%), Emerging Markets (-0.50%) and Emerging Europe (-0.45%)

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Global Benchmarks

  • Commodities struggled as oil extended its losses, but most risk assets posted gains
  • Leaders: Latin America equity (3.81%), U.S. REITs (3.37%) and emerging EMEA equity (3.19%)
  • Laggards: oil futures (-6.76%), energy commodities (-5.76%) and commodities (-2.63%)
  • Equities: of our benchmark universe, only U.S. energy and developed Asia-Pacific notched losses
  • Bonds: all of our benchmarks rose, led by 5-year Treasuries and inflation-linked securities
  • Real Estate: real estate rallied, even outperforming the broad equity market in the U.S.
  • Commodities: base metals eked out a small gain, but other sectors declined, with energy performing the worst
  • Currencies: both developed and emerging currencies appreciated materially against the U.S. dollar
  • Multi-Asset: risk parity outperformed 60/40 due to leveraged bond exposure, while global strategies outpaced U.S. strategies

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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 currencies (2.98%), developed market currencies (2.72%) and the spread between U.S. 5-year and 1-year investment grade bonds (2.31%)
  • Laggards: U.S. equity value (-2.68%), the spread between Asian-Pacific and developed market equity (-2.49%) and the spread between U.S. energy equity and the market (-2.31%)
  • Commodity: commodity betas fell, but momentum, trend following and term structure strategies rose
  • Credit: short-dated investment grade bonds outperformed Treasuries, but longer-dated bonds underperformed
  • Equity: beta and size factors rose, but value strategies lagged; momentum and trend following results were mixed
  • Fixed Income: term structure strategies performed strongly both in the U.S. and abroad
  • Foreign Exchange: foreign currencies rallied against the dollar; momentum also produced profits
  • Multi-Asset: our momentum and trend following factors produced mixed, but muted results
  • Real Estate: real estate modestly outperformed small cap equities in the U.S., but trailed internationally
  • Risk: option writing and short volatility strategies produced healthy gains
  • Momentum: trend following and momentum were losing strategies in most asset classes, but performed well within commodities

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March 2016 Estimate Review

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

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