EQIRA: Empirical and Quantitative Investment Research and Analysis

Hedge Funds Weekly: June 13, 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 0.14% last week as foreign equity and short volatility losses stifled returns
  • Hedge funds are now up 0.18% for the month and 0.51% for the year
  • Only six of the 30 hedge fund strategies we track earned positive returns
  • We currently estimate that hedge funds returned 0.43% in May, 0.12% more than our initial projection of 0.31%
  • Commodities and bonds led the way, as equities lagged globally
  • Developed market equities fell worldwide, but emerging equities notched gains
  • Fixed income securities posted healthy risk-adjusted returns globally
  • Strong performance by precious metals and agricultural commodities pushed our broad commodity index higher
  • FX carry, momentum and value strategies all produced gains as emerging currencies surged against the dollar
  • Most of our short volatility and variance strategies declined
  • Momentum and trend following strategies tended to struggle both within and across asset classes

Global Hedge Fund Performance

  • Our factor-based estimates project that hedge funds fell 0.14% last week as foreign equity and short volatility losses stifled returns
  • Hedge funds are now up 0.18% for the month and 0.51% for the year
  • Our factor attribution analysis suggests positive weekly contributions from the spread between emerging market and developed market equities (0.07%), alpha (0.06%) and equity size (0.04%)
  • It indicates negative weekly contributions from the spread between developed market equities and U.S. equities (-0.19%), short volatility (-0.08%) and equity sector beta (-0.05%)
  • It estimates weekly, month-to-date and year-to-date alphas of 0.06%, 0.07% and -0.06%, respectively

eqira_hf_retatt_1w_20160613

eqira_hf_retatt_mtd_20160613

Strategy Performance

  • Only six of the 30 hedge fund strategies we track earned positive returns
  • Leaders: Managed Futures (0.87%), Equity Short-Bias (0.70%) and Commodities (0.55%)
  • Laggards: Healthcare (-0.79%), Europe (-0.50%) and Equity Value (-0.49%)
  • North American funds outperformed both Asian and European funds
  • The spread between developed market equities and U.S. equities was the most significant factor driving strategy returns
  • Alpha leaders: Managed Futures (0.67%), Special Situations (0.20%) and Distressed Securities (0.18%)
  • Alpha laggards: Emerging Asia (-0.17%), Equity Value (-0.16%) and Emerging Europe (-0.14%)

eqira_hf_ests_20160613

Global Benchmarks

  • Commodities and bonds led the way, as equities lagged globally
  • Leaders: precious metals (3.24%), agricultural commodities (2.87%) and gold futures (2.66%)
  • Laggards: developed Europe equity (-2.50%), developed ex-U.S. equity (-1.32%) and U.S. financials equity (-1.25%)
  • Equities: developed market equities fell worldwide, but emerging equities notched gains
  • Bonds: fixed income securities posted healthy risk-adjusted returns globally
  • Real Estate: real estate securities were mostly flat both in the U.S. and overseas
  • Commodities: strong performance by precious metals and agricultural commodities pushed our broad commodity index higher
  • Currencies: emerging currencies appreciated materially against the U.S. dollar, while developed currencies depreciated slightly
  • Multi-Asset: risk parity, fueled by bond strength, outperformed 60/40, particularly in the U.S.

eqira_gb_20160613

eqira_gb_top_movers_20160613

Market Factors

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

  • Leaders: the spread between emerging and developed market equity (2.32%), emerging market currencies (2.22%) and the spread between emerging and developed market equity indexes (2.18%)
  • Laggards: the spread between European and developed market equity (-2.48%), 1-month developed market equity sector momentum (-1.87%) and short short-dated VIX futures (-1.47%)
  • Commodity: all of our major commodity factors posted gains, led by sector momentum and gold
  • Credit: credit factors were mixed, as investment grade bonds only outperformed U.S. Treasuries due to duration mismatches
  • Equity: short-term momentum strategies suffered, but longer-term, U.S.-focused strategies earned profits
  • Fixed Income: term structure strategies gained both in the U.S. and Europe
  • Foreign Exchange: carry, momentum and value strategies all produced gains
  • Multi-Asset: our multi-asset class momentum and trend following strategies produced mixed results
  • Real Estate: real estate securities slightly outperformed small cap equities both in the U.S. and abroad
  • Risk: most of our short volatility and variance strategies declined
  • Momentum: momentum and trend following strategies tended to struggle both within and across asset classes

eqira_mf_20160613

eqira_mf_top_movers_20160613

May 2016 Estimate Review

  • Most of the indexes underlying our composite indexes have reported May returns, but our analysis is still preliminary and subject to change
  • We currently estimate that hedge funds returned 0.43% in May, 0.12% more than our initial projection of 0.31%
  • As of this moment, we correctly predicted the direction of 28 of 30 strategies
  • We were within 25 basis points for 16 indexes and within 50 basis points for 26
  • Both our hit rate and our accuracy were above average
  • 23 strategies performed better than we anticipated; seven performed worse
  • Most accurate: Multi-Strategy (within 6 basis points), Emerging Asia (within 8 bps) and North America (within 10 bps)
  • Least accurate: Energy (2.93% better than expected), Commodities (1.42% better) and Europe (0.59% better)
  • Overall, our estimates were 72% more accurate than naive forecasts of flat returns

eqira_hf_est_analysis_20160613

Connect With Us

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