EQIRA: Empirical and Quantitative Investment Research and Analysis

Hedge Funds Weekly: November 7, 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 fell 0.69% last week as equity declines fueled losses
  • Hedge funds are now down 0.61% for the month and up 2.28% for the year
  • Only one of the 30 hedge fund strategies we track earned positive returns
  • High quality bonds and gold rose, but most asset classes continued to stumble
  • Equities fell in all major regions and sectors
  • Investment grade bonds gained, but high yield and emerging market bonds struggled
  • Commodities fell, but commodity term structure and medium-term momentum factors rallied
  • Developed and emerging market currencies both appreciated against the dollar
  • Short volatility factors produced losses, but short variance factors were relatively stable
  • Trend following strategies tended to decline in most asset classes, but medium-term momentum strategies outperformed

Global Hedge Fund Performance

  • Our factor-based projections estimate that hedge funds fell 0.69% last week as equity declines fueled losses
  • Hedge funds are now down 0.61% for the month and up 2.28% for the year
  • Our factor attribution analysis suggests positive weekly contributions from equity country momentum (0.08%), equity sector beta (0.07%) and commodity momentum (0.06%)
  • It indicates negative weekly contributions from equity beta (-0.43%), alpha (-0.19%) and high yield credit spreads (-0.10%)
  • It estimates weekly, month-to-date and year-to-date alphas of -0.19%, -0.19% and -0.26%, respectively

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Strategy Performance

  • Only one of the 30 hedge fund strategies we track earned positive returns
  • Leaders: Equity Short-Bias (0.54%), Convertible Arbitrage (-0.12%) and Equity Market Neutral (-0.15%)
  • Laggards: Equity Long Only (-1.50%), Emerging Europe (-1.38%) and Latin America (-1.34%)
  • North American funds trailed both Asian and European funds
  • Equity beta was the most significant factor driving strategy returns
  • Alpha leaders: Latin America (0.57%), Technology (0.35%) and Healthcare (0.30%)
  • Alpha laggards: Managed Futures (-0.90%), Equity Short-Bias (-0.73%) and Hedge Funds (-0.19%)

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Global Benchmarks

  • High quality bonds and gold rose, but most asset classes continued to stumble
  • Leaders: precious metals (2.36%), gold futures (2.18%) and developed ex-US government bonds (2.07%)
  • Laggards: oil futures (-9.50%), energy commodities (-9.33%) and Latin America equity (-5.02%)
  • Equities: equities fell in all major regions and sectors
  • Bonds: investment grade bonds gained, but high yield and emerging market bonds struggled
  • Real Estate: real estate securities declined in the US, but held steady abroad
  • Commodities: energy losses drove our broad commodities index downward despite gains in base and precious metals
  • Currencies: developed and emerging market currencies both appreciated against the dollar
  • Multi-Asset: global risk parity delivered a modest gain, but our other multi-asset class indexes fell

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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: the spread between global and US inflation-linked securities (3.49%), emerging market equity value (3.27%) and 1-year emerging market equity country momentum (2.85%)
  • Laggards: 1-month emerging market equity country momentum (-3.67%), oil futures (-3.01%) and the spread between emerging market and US government bonds (-2.54%)
  • Commodity: term structure and medium-term momentum strategies posted positive returns, but trend following strategies declined
  • Credit: corporate bonds materially underperformed government bonds both domestically and overseas
  • Equity: value factors performed well worldwide, but size factors generated mixed results
  • Fixed Income: term structure strategies gained in the US but fell abroad
  • Foreign Exchange: currency carry had a particularly bad week, and currency momentum struggled as well
  • Multi-Asset: multi-asset class trend following and short-term momentum strategies produced losses
  • Real Estate: real estate securities modestly underperformed small cap equities in the US, but materially outperformed in foreign markets
  • Risk: short volatility factors produced losses, but short variance factors were relatively stable
  • Momentum: trend following strategies tended to decline in most asset classes, but medium-term momentum strategies outperformed

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October 2016 Projection Review

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

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