EQIRA: Empirical and Quantitative Investment Research and Analysis

Hedge Funds Weekly: February 6, 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 0.09% last week as equity size and beta exposures lifted returns
  • Hedge funds are now up 0.43% for the month and 1.45% for the year
  • 23 of the 30 hedge fund strategies we track earned positive returns
  • Gains were modest but widespread as most asset classes rose globally
  • Equities gained worldwide, but sector performance was mixed in the US
  • Fixed income securities were mostly flat in the US
  • Precious metals led the way as all commodity sectors notched gains
  • Developed and emerging market currencies both appreciated significantly against the dollar
  • Almost all of our short volatility and variance factors rose, but the gains were small
  • Short-term momentum and trend following strategies tended to decline both within and across asset classes

Global Hedge Fund Performance

  • Our factor-based projections estimate that hedge funds added 0.09% last week as equity size and beta exposures lifted returns
  • Hedge funds are now up 0.43% for the month and 1.45% for the year
  • Our factor attribution analysis suggests positive weekly contributions from equity size (0.05%), equity beta (0.05%) and commodity momentum (0.03%)
  • It indicates negative weekly contributions from alpha (-0.05%), high yield credit spreads (-0.03%) and equity country momentum (-0.02%)
  • It estimates weekly, month-to-date and year-to-date alphas of -0.05%, -0.04% and -0.46%, respectively

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Strategy Performance

  • 23 of the 30 hedge fund strategies we track earned positive returns
  • Leaders: Healthcare (1.71%), Latin America (1.19%) and Equity Growth (0.49%)
  • Laggards: Equity Short-Bias (-0.48%), Managed Futures (-0.46%) and Merger Arbitrage (-0.16%)
  • North American funds outperformed both Asian and European funds
  • Equity sector beta was the most significant factor driving strategy returns
  • Alpha leaders: Latin America (0.27%), Equity Value (0.19%) and Technology (0.11%)
  • Alpha laggards: Managed Futures (-0.48%), Emerging Europe (-0.45%) and Equity Short-Bias (-0.40%)

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Global Benchmarks

  • Gains were modest but widespread as most asset classes rose globally
  • Leaders: gold futures (2.50%), US healthcare equity (2.48%) and precious metals (2.42%)
  • Laggards: US telecommunications equity (-2.09%), US energy equity (-1.08%) and US materials equity (-0.95%)
  • Equities: equities gained worldwide, but sector performance was mixed in the US
  • Bonds: fixed income securities were mostly flat in the US, but foreign government bonds performed well
  • Real Estate: real estate securities rose both in the US and abroad
  • Commodities: precious metals led the way as all commodity sectors notched gains
  • Currencies: developed and emerging market currencies both appreciated significantly against the dollar
  • Multi-Asset: all of our multi-asset class benchmarks rose, led by global risk parity

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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: emerging market currencies (2.49%), the spread between US healthcare equity and the market (2.46%) and emerging market equity size (2.20%)
  • Laggards: 1-month commodity momentum (-2.55%), 1-month commodity sector momentum (-2.42%) and the spread between US telecommunications equity and the market (-2.09%)
  • Commodity: term structure, trend following, and short-term momentum factors all declined
  • Credit: credit factors produced mixed, but muted results
  • Equity: size factors rose worldwide while value factors fell
  • Fixed Income: term structure strategies gained modestly in the US but declined in Europe
  • Foreign Exchange: alternative currency factors were roughly flat
  • Multi-Asset: our multi-asset class trend following and short-term momentum strategies declined slightly
  • Real Estate: real estate securities matched small cap equities worldwide
  • Risk: almost all of our short volatility and variance factors rose, but the gains were small
  • Momentum: short-term momentum and trend following strategies tended to decline both within and across asset classes

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January 2017 Projection Review

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

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