EQIRA: Empirical and Quantitative Investment Research and Analysis

Hedge Funds Weekly: January 9, 2017

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 0.55% last week as global equity gains fueled performance
  • Hedge funds are now up 0.55% for the month and year
  • All but one of the 30 hedge fund strategies we track earned positive returns
  • Aside from high quality foreign bonds, most asset groups worldwide notched gains
  • Equities rose in every major region and sector
  • Most fixed income securities gained globally
  • Energy commodities dipped, pulling down our broad index despite gains in every other commodity sector
  • Neither developed nor emerging market currencies moved significantly relative to the dollar
  • All of our short volatility and variance factors rose
  • Outside of commodities, trend following and momentum strategies tended to profit

Global Hedge Fund Performance

  • Our factor-based projections estimate that hedge funds added 0.55% last week as global equity gains fueled performance
  • Hedge funds are now up 0.55% for the month and year
  • Our factor attribution analysis suggests positive weekly contributions from equity beta (0.40%), equity sector beta (0.09%) and short volatility (0.08%)
  • It indicates negative weekly contributions from alpha (-0.32%), fixed income term structure (-0.04%) and equity region beta (-0.02%)
  • It estimates weekly and year-to-date alphas of -0.32%

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Strategy Performance

  • All but one of the 30 hedge fund strategies we track earned positive returns
  • Leaders: Emerging Asia (1.25%), Equity Long Only (1.25%) and Healthcare (1.21%)
  • Laggards: Equity Short-Bias (-0.77%), Managed Futures (0.10%) and Commodities (0.14%)
  • North American funds trailed both Asian and European funds
  • Equity beta was the most significant factor driving strategy returns
  • Alpha leaders: Equity Short-Bias (0.64%), Equity Market Neutral (0.01%) and Merger Arbitrage (-0.02%)
  • Alpha laggards: Emerging Europe (-0.64%), Energy (-0.62%) and Healthcare (-0.57%)

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Global Benchmarks

  • Aside from high quality foreign bonds, most asset groups worldwide notched gains
  • Leaders: US healthcare equity (2.96%), US MLPs (2.63%) and agricultural commodities (2.57%)
  • Laggards: energy commodities (-1.14%), developed ex-US government bonds (-0.32%) and developed ex-US investment grade bonds (-0.27%)
  • Equities: equities rose in every major region and sector
  • Bonds: other than foreign government and investment grade bonds, most fixed income securities gained globally
  • Real Estate: real estate securities rose worldwide
  • Commodities: energy commodities dipped, pulling down our broad index despite gains in every other commodity sector
  • Currencies: developed market currencies depreciated and emerging market currencies appreciated against the dollar, but both moves were modest
  • Multi-Asset: all of our multi-asset class benchmarks gained, with US-only indexes outperforming global indexes

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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: short short-dated VIX futures (2.13%), the spread between US listed private equity and small cap equity (2.07%) and the spread between emerging market and US government bonds (1.67%)
  • Laggards: 1-month commodity momentum (-3.29%), 1-month commodity sector momentum (-2.07%) and the spread between 10-year and 1-year European government bonds (-2.04%)
  • Commodity: trend following and short-term momentum strategies struggled
  • Credit: aside from long-dated investment grade, returns to credit strategies were positive worldwide
  • Equity: size and value factors gained in foreign developed markets, but fell in the US and emerging markets
  • Fixed Income: term structure strategies rose in the US, but struggled in Europe
  • Foreign Exchange: returns to alternative currency strategies were positive, but small
  • Multi-Asset: all of our multi-asset class momentum and trend following strategies rose
  • Real Estate: real estate securities outperformed small cap equities worldwide
  • Risk: all of our short volatility and variance factors rose, led by our short VIX futures strategy
  • Momentum: outside of commodities, trend following and momentum strategies tended to profit

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December 2016 Projection Review

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

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