EQIRA: Empirical and Quantitative Investment Research and Analysis

Hedge Funds Weekly: May 2, 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 fell 0.08% last week as domestic equity losses offset foreign equity gains
  • Hedge funds are now up 0.80% for the month and down 0.02% for the year
  • 15 of the 30 hedge fund strategies we track earned positive returns
  • We currently project that hedge funds returned 1.54% in March, 0.08% less than our initial estimate of 1.62%
  • Bond, foreign currency and commodity strength helped to stem global equity losses
  • Most equity sectors, regions and styles fell
  • Bonds, particularly those of foreign governments, gained worldwide
  • All major commodity sectors rallied, with oil and gold leading the way
  • Foreign currencies appreciated against the U.S. dollar, gaining materially on a risk-adjusted basis
  • Most of our short volatility and variance factors posted modest losses
  • Although momentum strategies tended to gain they are still down heavily for the month

Global Hedge Fund Performance

  • Our factor-based estimates project that hedge funds fell 0.08% last week as domestic equity losses offset foreign equity gains
  • Hedge funds are now up 0.80% for the month and down 0.02% for the year
  • Our factor attribution analysis suggests positive weekly contributions from the spread between developed market equities and U.S. equities (0.19%), equity size (0.15%) and oil beta (0.04%)
  • It indicates negative weekly contributions from equity beta (-0.24%), high yield credit spreads (-0.06%) and multi-asset class momentum (-0.05%)
  • It estimates weekly, month-to-date and year-to-date alphas of -0.04%, -0.06% and -0.32%, respectively

eqira_hf_retatt_1w_20160502

eqira_hf_retatt_mtd_20160502

Strategy Performance

  • 15 of the 30 hedge fund strategies we track earned positive returns
  • Leaders: Latin America (1.50%), Emerging Europe (1.02%) and Commodities (0.82%)
  • Laggards: Healthcare (-1.15%), Emerging Asia (-1.04%) and Technology (-0.72%)
  • North American funds outperformed both Asian and European funds
  • Equity beta was the most significant factor driving strategy returns
  • Alpha leaders: Managed Futures (0.36%), Distressed Securities (0.16%) and Healthcare (0.15%)
  • Alpha laggards: Equity Short-Bias (-0.29%), Emerging Europe (-0.22%) and Asia (-0.19%)

eqira_hf_ests_20160502

Global Benchmarks

  • Bond, foreign currency and commodity strength helped to stem global equity losses
  • Leaders: oil futures (5.01%), precious metals (4.96%) and gold futures (4.92%)
  • Laggards: U.S. information technology equity (-3.51%), U.S. healthcare equity (-3.02%) and U.S. growth equity (-1.75%)
  • Equities: most sectors, regions and styles fell as equities declined globally
  • Bonds: bonds gained worldwide with developed market government securities posting the largest moves
  • Real Estate: real estate securities fell slightly in the U.S. but gained abroad
  • Commodities: commodities in all major sectors rallied, with oil and gold leading the way
  • Currencies: foreign currencies appreciated against the U.S. dollar, gaining materially on a risk-adjusted basis
  • Multi-Asset: risk parity outperformed 60/40 due to leveraged bond exposure; U.S. returns trailed global returns

eqira_gb_20160502

eqira_gb_top_movers_20160502

Market Factors

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

  • Leaders: developed market equity size (3.77%), the spread between Latin American and emerging market equity (3.32%) and gold futures (2.84%)
  • Laggards: the spread between U.S. information technology equity and the market (-2.93%), the spread between Asian and emerging market equity (-2.15%) and the spread between U.S. healthcare equity and the market (-2.00%)
  • Commodity: traditional betas gained, but most alternative strategies (such as trend following and term structure) fell
  • Credit: performance was mixed, but most developed market credit factors declined
  • Equity: small caps and value stocks outperformed; momentum strategies partially offset month-to-date losses
  • Fixed Income: term structure strategies gained in the U.S., but fell abroad; inflation-linked bonds outperformed Treasuries
  • Foreign Exchange: although carry strategies declined, foreign currencies appreciated while momentum and value gained
  • Multi-Asset: medium-term momentum and trend following strategies eked out modest gains
  • Real Estate: all of our real estate factors earned profits; real estate led broad equities worldwide
  • Risk: most of our short volatility and variance factors posted modest losses
  • Momentum: although medium-term momentum strategies tended to gain they are still down heavily for the month

eqira_mf_20160502

eqira_mf_top_movers_20160502

March 2016 Estimate Review

  • All of the indexes underlying our composite indexes have reported March returns, but our analysis is still preliminary and subject to change
  • We currently project that hedge funds returned 1.54% in March, 0.08% less than our initial estimate of 1.62%
  • As of this moment, we correctly predicted the direction of 30 of 30 strategies
  • We were within 25 basis points for eight indexes and within 50 basis points for 16
  • Our hit rate was above average but our accuracy was about average
  • 16 strategies performed better than we anticipated; 14 performed worse
  • Most accurate: Commodities (within 1 basis point), Distressed Securities (within 2 bps) and Hedge Funds (within 8 bps)
  • Least accurate: Special Situations (3.18% better than expected), Emerging Asia (2.39% better) and Latin America (2.19% better)
  • Overall, our estimates resulted in a 92% reduction in variance relative to naive forecasts of flat returns

eqira_hf_est_analysis_20160502

Connect With Us

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