EQIRA: Empirical and Quantitative Investment Research and Analysis

Hedge Funds Weekly: September 5, 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 projections estimate that hedge funds added 0.17% last week as diversified factor performance led to modest gains
  • Hedge funds are now up 0.28% for the month and 2.82% for the year
  • 23 of the 30 hedge fund strategies we track earned positive returns
  • Aside from commodities and foreign developed market government bonds, most asset classes were up for the week
  • Equities notched modest gains domestically, but posted mixed results overseas
  • Government bonds rose in the U.S., but fell internationally, particularly in developed markets
  • The energy complex struggled once again as oil produced sizeable losses
  • Currency momentum strategies declined materially and foreign currencies underperformed the dollar
  • All of our short volatility and variance factors rose, led by our VIX term structure strategy
  • Outside of equities, trend following and momentum strategies tended to produce gains both within and across asset classes

Global Hedge Fund Performance

  • Our factor-based projections estimate that hedge funds added 0.17% last week as diversified factor performance led to modest gains
  • Hedge funds are now up 0.28% for the month and 2.82% for the year
  • Our factor attribution analysis suggests positive weekly contributions from equity beta (0.16%), alpha (0.09%) and commodity momentum (0.07%)
  • It indicates negative weekly contributions from currency momentum (-0.10%), the spread between developed market equities and U.S. equities (-0.06%) and equity size (-0.06%)
  • It estimates weekly, month-to-date and year-to-date alphas of 0.09%, -0.11% and -0.60%, respectively

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Strategy Performance

  • 23 of the 30 hedge fund strategies we track earned positive returns
  • Leaders: Europe (0.64%), Special Situations (0.45%) and Healthcare (0.42%)
  • Laggards: Equity Short-Bias (-0.52%), Managed Futures (-0.48%) and Global Macro (-0.16%)
  • North American funds outperformed both Asian and European funds
  • Equity beta was the most significant factor driving strategy returns
  • Alpha leaders: Europe (0.23%), Distressed Securities (0.17%) and Special Situations (0.13%)
  • Alpha laggards: Managed Futures (-0.94%), Global Macro (-0.33%) and Latin America (-0.26%)

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Global Benchmarks

  • Aside from commodities and foreign developed market government bonds, most asset classes were up for the week
  • Leaders: U.S. financials equity (1.98%), U.S. REITs (1.56%) and U.S. small cap equity (1.28%)
  • Laggards: oil futures (-6.71%), energy commodities (-6.62%) and commodities (-3.25%)
  • Equities: equities notched modest gains domestically, but posted mixed results overseas
  • Bonds: government bonds rose in the U.S., but fell internationally, particularly in developed markets
  • Real Estate: real estate securities were split, rising in the U.S. and falling abroad
  • Commodities: the energy complex struggled once again as oil produced sizeable losses, leading to negative commodity index returns
  • Currencies: both developed and emerging market currencies depreciated against the dollar
  • Multi-Asset: foreign bond performance led global 60/40 and risk parity strategies to declines, but U.S.-centric strategies gained

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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: 1-year commodity momentum (3.41%), 1-year commodity sector momentum (2.87%) and commodity term structure (2.51%)
  • Laggards: the spread between global and U.S. aggregate bonds (-3.42%), the spread between developed market and U.S. government bonds (-3.29%) and currency momentum (-2.34%)
  • Commodity: momentum, trend following and term structure strategies all rose as broad market indexes fell
  • Credit: other than foreign high yield spreads, credit strategies tended to produce small losses
  • Equity: value and size factors produced mixed results, but medium-term momentum and trend following factors were predominantly negative
  • Fixed Income: term structure strategies rose in the U.S., but fell in Europe
  • Foreign Exchange: currency momentum strategies declined materially and foreign currencies underperformed the dollar
  • Multi-Asset: all of our multi-asset class trend following and momentum strategies earned positive returns
  • Real Estate: real estate securities outperformed small cap equities domestically while underperforming internationally
  • Risk: all of our short volatility and variance factors rose, led by our VIX term structure strategy
  • Momentum: outside of equities, trend following and momentum strategies tended to produce gains both within and across asset classes

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August 2016 Projection Review

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

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