EQIRA: Empirical and Quantitative Investment Research and Analysis

Hedge Funds Weekly: January 16, 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 0.29% last week as foreign equities and sector exposures drove performance
  • Hedge funds are now up 0.92% for the month and year
  • All but four of the 30 hedge fund strategies we track earned positive returns
  • Diversified portfolios rose last week as mild, but broad-based gains overcame muted US stock performance
  • Equities dipped slightly in the US, but performed well overseas
  • Nearly all of our global bond indexes rose, with only foreign high yield bonds declining
  • Base metals soared, helping our broad commodity index overcome losses from energy commodities
  • Both developed and emerging market currencies appreciated against the dollar
  • All of our short volatility and variance factors rose
  • Trend following and momentum strategies tended to perform poorly both within and across asset classes
  • We currently estimate that hedge funds returned 0.86% in December, 0.19% more than our initial projection of 0.67%

Global Hedge Fund Performance

  • Our factor-based projections estimate that hedge funds added 0.29% last week as foreign equities and sector exposures drove performance
  • Hedge funds are now up 0.92% for the month and year
  • Our factor attribution analysis suggests positive weekly contributions from the spread between developed market equities and US equities (0.13%), equity sector beta (0.11%) and the spread between emerging market and developed market equities (0.05%)
  • It indicates negative weekly contributions from commodity momentum (-0.06%), multi-asset class momentum (-0.05%) and equity region beta (-0.04%)
  • It estimates weekly and year-to-date alphas of -0.02% and -0.26%, respectively

eqira_hf_retatt_w01_20170113

eqira_hf_retatt_mtd_20170113

Strategy Performance

  • All but four of the 30 hedge fund strategies we track earned positive returns
  • Leaders: Emerging Asia (1.06%), Emerging Markets (0.81%) and Latin America (0.64%)
  • Laggards: Equity Short-Bias (-0.46%), Managed Futures (-0.18%) and Emerging Europe (-0.15%)
  • North American funds trailed both Asian and European funds
  • The spread between developed market equities and US equities was the most significant factor driving strategy returns
  • Alpha leaders: Healthcare (0.29%), Event Driven (0.17%) and Merger Arbitrage (0.16%)
  • Alpha laggards: Energy (-0.59%), Managed Futures (-0.42%) and Equity Short-Bias (-0.24%)

eqira_hf_proj_20170113

Global Benchmarks

  • Diversified portfolios rose last week as mild, but broad-based gains overcame muted US stock performance
  • Leaders: base metals (5.85%), gold futures (1.94%) and precious metals (1.87%)
  • Laggards: oil futures (-3.11%), energy commodities (-2.31%) and US REITs (-2.19%)
  • Equities: equities dipped slightly in the US, but performed well overseas
  • Bonds: nearly all of our global bond indexes rose, with only foreign high yield bonds declining
  • Real Estate: real estate securities stumbled both domestically and abroad
  • Commodities: base metals soared, helping our broad commodity index overcome losses from energy commodities
  • Currencies: both developed and emerging market currencies appreciated against the dollar
  • Multi-Asset: all of our multi-asset class benchmarks gained, with risk parity strategies outperforming 60/40

eqira_gb_20170113

eqira_gb_top_movers_w01_20170113

eqira_gb_top_movers_mtd_20170113

Market Factors

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

  • Leaders: emerging market equity value (1.74%), VIX futures term structure (1.62%) and 1-year emerging market equity sector momentum (1.57%)
  • Laggards: 1-month commodity momentum (-2.37%), US equity index value (-1.75%) and 1-month commodity sector momentum (-1.65%)
  • Commodity: momentum strategies struggled, but trend following held even and term structure gained
  • Credit: returns to investment grade credit spreads were generally positive, but high yield underperformed
  • Equity: value factors declined in developed markets, while size factors rose in the US and fell abroad
  • Fixed Income: term structure strategies gained both in the US and in Europe
  • Foreign Exchange: currency carry lost value, but other alternative currency factors rose modestly
  • Multi-Asset: all of our multi-asset class momentum and trend following strategies declined
  • Real Estate: real estate securities materially underperformed small cap equities worldwide
  • Risk: all of our short volatility and variance factors rose, led by our VIX term structure strategy
  • Momentum: trend following and momentum strategies tended to perform poorly both within and across asset classes

eqira_mf_20170113

eqira_mf_top_movers_w01_20170113

eqira_mf_top_movers_mtd_20170113

December 2016 Projection Review

  • Most of the indexes underlying our composite indexes have reported December returns, but our analysis is still preliminary and subject to change
  • We currently estimate that hedge funds returned 0.86% in December, 0.19% more than our initial projection of 0.67%
  • As of this moment, we correctly predicted the direction of 27 of 30 strategies
  • We were within 25 basis points for 15 indexes and within 50 basis points for 24
  • Our hit rate was about average but our accuracy was above average
  • 19 strategies performed better than we anticipated; 10 performed worse
  • Most accurate: Latin America (exact), Equity Market Neutral (within 2 basis points) and Distressed Securities (within 3 bps)
  • Least accurate: Energy (1.56% better than expected), Equity Short-Bias (0.95% worse) and Europe (0.70% better)
  • Overall, our projections were 86% more accurate than naive forecasts

eqira_hf_proj_analysis_20170113

Connect With Us

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