EQIRA: Empirical and Quantitative Investment Research and Analysis

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

Global Hedge Fund Performance

  • 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
  • Our factor attribution analysis suggests positive weekly contributions from equity beta (0.15%), high yield credit spreads (0.07%) and alpha (0.05%)
  • It indicates negative weekly contributions from the spread between developed market equities and US equities (-0.08%), the spread between emerging market and developed market equities (-0.06%) and currency momentum (-0.05%)
  • It estimates weekly, month-to-date and year-to-date alphas of 0.05%, 0.07% and 0.25%, respectively

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Strategy Performance

  • 21 of the 30 hedge fund strategies we track earned positive returns
  • Leaders: Healthcare (0.85%), Equity Value (0.54%) and Europe (0.52%)
  • Laggards: Emerging Asia (-0.38%), Asia (-0.34%) and Commodities (-0.29%)
  • North American funds outperformed both Asian and European funds
  • Equity beta was the most significant factor driving strategy returns
  • Alpha leaders: Managed Futures (0.61%), Equity Value (0.28%) and Special Situations (0.23%)
  • Alpha laggards: Latin America (-0.09%), Europe (-0.06%) and Convertible Arbitrage (-0.02%)

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Global Benchmarks

  • US equities gained modestly, but most asset classes worldwide declined
  • Leaders: US healthcare equity (1.48%), developed Europe equity (1.43%) and US energy equity (1.32%)
  • Laggards: precious metals (-2.69%), gold futures (-2.52%) and global ex-US real estate (-1.77%)
  • Equities: equities rose in developed Europe but fell in Asia and in emerging markets
  • Bonds: bonds stumbled globally and were the week’s worst performing asset class on a risk-adjusted basis
  • Real Estate: real estate securities declined worldwide
  • Commodities: commodities dropped, led downward by losses in energy and precious metals
  • Currencies: both developed and emerging market currencies depreciated against the dollar
  • Multi-Asset: risk parity strategies heavily underperformed 60/40 due to leveraged bond exposure

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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 developed European and developed market equity (2.96%), the spread between 5-year US investment grade bonds and 5-year Treasury bonds (2.23%) and the spread between 10-year US investment grade bonds and 10-year Treasury bonds (1.65%)
  • Laggards: US Treasury bond term structure (-2.36%), the spread between 5-year and 1-year US Treasuries (-2.28%) and the spread between developed market real estate securities and equities (-2.27%)
  • Commodity: trend following, momentum, and term structure strategies all declined
  • Credit: credit factors produced healthy gains in all major regions
  • Equity: size and value factors underperformed in the US, but rose in emerging markets
  • Fixed Income: term structure strategies struggled both in the US and in Europe
  • Foreign Exchange: all of our alternative currency factors fell
  • Multi-Asset: although our medium-term momentum strategy profited, most of our other multi-asset class factors declined
  • Real Estate: real estate securities underperformed small cap equities worldwide
  • Risk: most of our short volatility and variance factors rose, led by our short VIX futures strategy
  • Momentum: trend following and momentum strategies posted mixed, but mostly negative performance

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February 2017 Projection Review

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

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