Fund Spotlight: Winton Futures USD Class B

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Hedge Funds Weekly: March 27, 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 fell 0.32% last week as US equity losses crippled returns
  • Hedge funds are now up 0.02% for the month and 1.98% for the year
  • Only six of the 30 hedge fund strategies we track earned positive returns
  • Equities stumbled in the US, giving back recent gains, but strong fixed income performance worldwide helped to offset losses
  • Equities were flat to modestly positive overseas, but strongly negative in the US as nearly every sector and style fell
  • Bonds benefited from equity declines as each of our government and investment grade benchmarks rose
  • Precious metals added 1.58%, but every other commodity sector fell as our broad index lost 1.03%
  • Both developed and emerging market currencies appreciated against the dollar
  • All of our short volatility and variance factors declined
  • Momentum and trend following strategies mostly fell, both within and across asset classes
  • We now estimate that hedge funds returned 0.94% in February, 0.27% less than our initial projection of 1.21%

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Factor Spotlight: Commodity Term Structure

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Most Hedge Fund Strategies Are Redundant

Abstract: Hedge fund strategies are not as unique as investors believe. We examine 18 strategy indexes and find that three factors capture more than 87% of the variation in returns. Most strategies are redundant, which has several implications for portfolio construction. Investors should focus on finding quality funds independent of strategy.

Diversification is powerful. Most investors understand that it can substantially improve portfolio performance. Too much diversification can be just as detrimental as too little, however, if it causes investors to diversify into less attractive investments.

Benartzi and Thaler (2001)1 found that investors in defined contribution plans tend to divide their assets equally among available options, even when doing so results in poor asset allocations. Institutional investors, although usually much more sophisticated than retail investors, often make a similar mistake by over-diversifying into a wide array of asset classes and investment strategies.

It makes sense for institutional portfolios to include each of the most common hedge fund strategies if each contributes something unique, but is this really the case? In this report, we analyze hedge fund indexes using four different tools—correlation, clustering, principal components, and optimization—to determine which strategies are, in fact, distinct.

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Strategy Spotlight: Equity Long/Short

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Hedge Funds Weekly: March 20, 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 0.52% last week as worldwide equity gains lifted returns
  • Hedge funds are now up 0.38% for the month and 2.40% for the year
  • All but one of the 30 hedge fund strategies we track earned positive returns
  • After two weeks of declines, markets rebounded with strong performance in every major asset class
  • Equities rallied overseas, particularly in emerging markets, gaining more than 4% in emerging Asia and 5% in emerging Europe
  • Every one of our fixed income benchmarks rose, reversing last week’s losses
  • Base metals gained more than 3% and precious metals added more than 2% as all commodity sectors rose
  • Both developed and emerging market currencies appreciated materially against the dollar
  • Most of our short volatility and variance factors rose, but profits were modest
  • Trend following factors gained both within and across asset classes
  • We now estimate that hedge funds returned 0.99% in February, 0.22% less than our initial projection of 1.21%

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Fund Spotlight: Bridgewater All Weather 12%

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Hedge Funds Weekly: March 13, 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 fell 0.32% last week as gains from foreign equities could not offset widespread losses from other factors
  • Hedge funds are now down 0.15% for the month and up 1.90% for the year
  • Only three of the 30 hedge fund strategies we track earned positive returns
  • For the second straight week, most asset classes worldwide declined, leaving investors with little room to avoid losses
  • Equities gained modestly in foreign developed markets, but were down broadly elsewhere
  • Every one of our fixed income benchmarks fell
  • Each commodity sector dropped as oil futures plummeted more than 9%
  • Emerging market currencies depreciated against the dollar, while developed market currencies appreciated modestly
  • Most of our short volatility and variance factors rose, but the profits were small
  • Trend following strategies declined within and across most asset classes
  • We currently estimate that hedge funds returned 1.03% in February, 0.18% less than our initial projection of 1.21%

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Hedge Funds Weekly: March 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 0.13% last week as domestic equity gains lifted returns
  • Hedge funds are now up 0.16% for the month and 2.30% for the year
  • 21 of the 30 hedge fund strategies we track earned positive returns
  • US equities gained modestly, but most asset classes worldwide declined
  • Equities rose in developed Europe but fell in Asia and in emerging markets
  • Bonds stumbled globally and were the week’s worst performing asset class on a risk-adjusted basis
  • Commodities dropped, led downward by losses in energy and precious metals
  • Both developed and emerging market currencies depreciated against the dollar
  • Most of our short volatility and variance factors rose
  • Trend following and momentum strategies posted mixed, but mostly negative performance

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Hedge Funds Monthly: February 2017

The following is an excerpt from our Hedge Funds Monthly 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 1.21% in February as strong equity performance fueled returns
  • Hedge funds are now up 2.23% for the year
  • All but two of the 30 hedge fund strategies we track earned positive returns
  • February was a strong month for investors as most asset classes worldwide rose
  • Equities gained in most sectors and regions, but lagged in Europe
  • Bonds rose globally, but the largest risk-adjusted gains came in the US
  • Gold rallied, but broad commodities barely gained as energy and agricultural commodities underperformed
  • Emerging market currencies appreciated against the dollar while developed currencies depreciated
  • Most of our short volatility and variance factors rose
  • Trend following strategies mostly gained, but momentum factors underperformed among equities and commodities
  • Hedge funds returned 1.01% in January, 0.12% more than our initial projection of 0.89%

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