EQIRA: Empirical and Quantitative Investment Research and Analysis

Hedge Funds Weekly: June 6, 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 0.46% last week as as several equity factors contributed small gains
  • Hedge funds are now up 0.42% for the month and 0.70% for the year
  • All but one of the 30 hedge fund strategies we track earned positive returns
  • We currently estimate that hedge funds returned 0.37% in May, 0.06% more than our initial projection of 0.31%
  • Equities rose globally, but were outgained by government and investment grade bonds
  • Most equity sectors, styles and regions posted profits
  • Credit factors were among our worst performing strategies as corporate bonds materially underperformed government bonds
  • Oil fell, but gains in metals and agricultural commodities lifted our broad commodity index
  • FX carry, momentum and value strategies produced modest gains
  • All of our short volatility and variance strategies earned mild profits
  • Momentum and trend following strategy performance varied by asset class and region

Global Hedge Fund Performance

  • Our factor-based estimates project that hedge funds added 0.46% last week as as several equity factors contributed small gains
  • Hedge funds are now up 0.42% for the month and 0.70% for the year
  • Our factor attribution analysis suggests positive weekly contributions from equity size (0.09%), alpha (0.09%) and the spread between developed market equities and U.S. equities (0.05%)
  • It indicates negative weekly contributions from high yield credit spreads (-0.05%), equity region beta (-0.03%) and multi-asset class momentum (-0.02%)
  • It estimates weekly, month-to-date and year-to-date alphas of 0.09%, 0.09% and -0.09%, respectively

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Strategy Performance

  • All but one of the 30 hedge fund strategies we track earned positive returns
  • Leaders: Latin America (1.06%), Healthcare (0.72%) and Energy (0.65%)
  • Laggards: Emerging Europe (-0.26%), Fixed Income Arbitrage (0.06%) and Convertible Arbitrage (0.06%)
  • North American funds trailed both Asian and European funds
  • Alpha was the most significant factor driving strategy returns
  • Alpha leaders: Emerging Europe (0.28%), Emerging Asia (0.25%) and Managed Futures (0.24%)
  • Alpha laggards: Energy (-0.06%), Equity Value (-0.03%) and Healthcare (-0.03%)

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Global Benchmarks

  • Equities rose globally, but were outgained by government and investment grade bonds
  • Leaders: U.S. MLPs (3.45%), agricultural commodities (3.38%) and U.S. utilities equity (2.54%)
  • Laggards: oil futures (-1.43%), U.S. financials equity (-0.94%) and U.S. energy equity (-0.82%)
  • Equities: equities posted modest profits in most sectors, styles and regions
  • Bonds: government bonds had a very strong week, particularly on a risk-adjusted basis
  • Real Estate: real estate securities rose along with equities both in the U.S. and internationally
  • Commodities: oil fell, but gains in metals and agricultural commodities lifted our broad commodity index
  • Currencies: developed market currencies depreciated against the U.S. dollar, but emerging market currencies appreciated
  • Multi-Asset: risk parity, fueled by government bond strength, outperformed 60/40, particularly in the U.S.

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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 market equity size (2.40%), U.S. Treasury bond term structure (2.22%) and the spread between developed market and U.S. government bonds (2.05%)
  • Laggards: the spread between 5-year U.S. investment grade bonds and 5-year Treasury bonds (-2.83%), 1-month emerging market equity sector momentum (-2.64%) and the spread between U.S. mortgage-backed securities and U.S. Treasuries (-2.53%)
  • Commodity: medium-term momentum produced positive returns, but trend following and term structure strategies did not
  • Credit: credit factors were among our worst performing strategies as corporate bonds materially underperformed government bonds
  • Equity: equity size factors generated healthy returns, but value factors underperformed
  • Fixed Income: term structure strategies outpaced most other fixed income factors
  • Foreign Exchange: carry, momentum and value strategies produced modest gains
  • Multi-Asset: our multi-asset class momentum and trend following strategies produced mixed results
  • Real Estate: real estate securities slightly underperformed small cap equities both in the U.S. and abroad
  • Risk: all of our short volatility and variance strategies earned mild profits
  • Momentum: momentum and trend following strategy performance varied by asset class and region

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May 2016 Estimate Review

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

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