EQIRA: Empirical and Quantitative Investment Research and Analysis

Hedge Funds Weekly: August 29, 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 0.06% last week as declining U.S. equities hampered returns
  • Hedge funds are now up 0.49% for the month and 2.71% for the year
  • 12 of the 30 hedge fund strategies we track earned positive returns
  • Most of our global benchmarks suffered modest declines as all major asset classes finished the week in the red
  • U.S. financial stocks eked out a slight gain, but all other sectors posted losses
  • Foreign corporate bonds showed a profit, but U.S. Treasuries struggled, particularly at shorter maturities
  • Commodity momentum, trend following and term structure strategies rebounded from multiple weeks of losses
  • Currency carry strategies generated healthy risk-adjusted returns
  • All of our short volatility factors fell, but our short variance strategies rose, led by our short global equity variance factor
  • Trend following and momentum strategies posted mixed, but relatively muted, performance
  • We currently estimate that hedge funds returned 1.59% in July, 0.02% more than our initial projection of 1.57%

Global Hedge Fund Performance

  • Our factor-based estimates project that hedge funds fell 0.06% last week as declining U.S. equities hampered returns
  • Hedge funds are now up 0.49% for the month and 2.71% for the year
  • Our factor attribution analysis suggests positive weekly contributions from the spread between developed market equities and U.S. equities (0.12%), commodity momentum (0.03%) and liquidity factors (0.03%)
  • It indicates negative weekly contributions from equity beta (-0.14%), the spread between emerging market and developed market equities (-0.06%) and agricultural commodity beta (-0.04%)
  • It estimates weekly, month-to-date and year-to-date alphas of -0.03%, -0.26% and -0.16%, respectively

eqira_hf_retatt_1w_20160829

eqira_hf_retatt_mtd_20160829

Strategy Performance

  • 12 of the 30 hedge fund strategies we track earned positive returns
  • Leaders: Fixed Income Arbitrage (0.08%), Special Situations (0.08%) and Technology (0.07%)
  • Laggards: Energy (-0.85%), Latin America (-0.70%) and Managed Futures (-0.64%)
  • North American funds trailed both Asian and European funds
  • Equity beta was the most significant factor driving strategy returns
  • Alpha leaders: Emerging Asia (0.19%), Equity Value (0.13%) and Technology (0.11%)
  • Alpha laggards: Managed Futures (-0.66%), Emerging Europe (-0.29%) and Latin America (-0.24%)

eqira_hf_ests_20160829

Global Benchmarks

  • Most of our global benchmarks suffered modest declines as all major asset classes finished the week in the red
  • Leaders: developed Europe equity (0.69%), developed ex-U.S. high yield bonds (0.43%) and U.S. financials equity (0.42%)
  • Laggards: agricultural commodities (-3.02%), oil futures (-2.99%) and base metals (-2.50%)
  • Equities: U.S. financial stocks eked out a slight gain, but all other sectors posted losses
  • Bonds: foreign corporate bonds showed a profit, but U.S Treasuries struggled, particularly at shorter maturities
  • Real Estate: real estate securities fell domestically and were nearly flat internationally
  • Commodities: commodities were the worst performing asset class as all major sectors fell
  • Currencies: both developed and emerging market currencies depreciated against the dollar, with emerging currencies producing meaningful risk-adjusted losses
  • Multi-Asset: all of our multi-asset class benchmarks finished the week down, with risk parity strategies underperforming 60/40

eqira_gb_20160829

eqira_gb_top_movers_20160829

Market Factors

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

  • Leaders: the spread between global and U.S. inflation-linked securities (3.25%), commodity trend following (1.46%) and the spread between European and developed market equity (1.19%)
  • Laggards: emerging market currencies (-1.72%), the spread between emerging and developed market equity indexes (-1.64%) and the spread between U.S. healthcare equity and the market (-1.16%)
  • Commodity: momentum, trend following and term structure strategies rebounded from multiple weeks of losses
  • Credit: investment grade bonds outperformed similar duration government bonds for the fourth consecutive week
  • Equity: there was little consistency across regions among size, value and momentum factors
  • Fixed Income: term structure strategies declined is the U.S., but rose in Europe
  • Foreign Exchange: currency carry strategies generated healthy risk-adjusted returns
  • Multi-Asset: our multi-asset class momentum factors produced gains, but our trend following strategies posted losses
  • Real Estate: real estate securities trailed small caps on the U.S., but outperformed abroad
  • Risk: all of our short volatility factors fell, but our short variance strategies rose, led by our short global equity variance factor
  • Momentum: trend following and momentum strategies posted mixed, but relatively muted, performance

eqira_mf_20160829

eqira_mf_top_movers_20160829

July 2016 Estimate Review

  • All of the indexes underlying our composite indexes have reported July returns, but our analysis is still preliminary and subject to change
  • We currently estimate that hedge funds returned 1.59% in July, 0.02% more than our initial projection of 1.57%
  • As of this moment, we correctly predicted the direction of 29 of 30 strategies
  • We were within 25 basis points for 15 indexes and within 50 basis points for 24
  • Both our hit rate and our accuracy were above average
  • 17 strategies performed better than we anticipated; 13 performed worse
  • Most accurate: Relative Value (within 1 basis point), Hedge Funds (within 2 bps) and Multi-Strategy (within 4 bps)
  • Least accurate: Latin America (3.42% better than expected), Energy (1.05% worse) and Equity Growth (0.74% better)
  • Overall, our estimates were 89% more accurate than naive forecasts of flat returns

eqira_hf_est_analysis_20160829

Connect With Us

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