EQIRA: Empirical and Quantitative Investment Research and Analysis

Hedge Funds Weekly: August 7, 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 0.16% last week as foreign equity gains pushed year-to-date returns higher
  • Hedge funds are now up 0.09% for the month and 4.61% for the year
  • 21 of the 30 hedge fund strategies we track earned positive returns
  • Global portfolios inched higher last week amid modest gains in equities and fixed income securities
  • Equities gained just 0.36% globally, but rose in nearly all major regions
  • Although bonds added only 0.18% worldwide, all of our major fixed income benchmarks rose
  • Commodities dropped by 0.95% as agricultural futures slipped 2.96%
  • Both developed and emerging market currencies depreciated modestly against the dollar
  • Most of our short volatility and variance factors appreciated
  • Trend following strategies produced mixed results, but medium-term momentum strategies profited almost unanimously

Global Hedge Fund Performance

  • Our factor-based projections estimate that hedge funds added 0.16% last week as foreign equity gains pushed year-to-date returns higher
  • Hedge funds are now up 0.09% for the month and 4.61% for the year
  • Our factor attribution analysis suggests positive weekly contributions from the spread between developed market equities and US equities (0.10%), fixed income term structure (0.04%), and equity momentum (0.03%)
  • It indicates negative weekly contributions from equity size (-0.06%), agricultural commodity beta (-0.03%), and alpha (-0.03%)
  • It estimates weekly, month-to-date, and year-to-date alphas of -0.03%, -0.05%, and -0.06%, respectively

eqira_hf_retatt_w01_20170804

eqira_hf_retatt_mtd_20170804

Strategy Performance

  • 21 of the 30 hedge fund strategies we track earned positive returns
  • Leaders: Emerging Europe (0.82%), Latin America (0.51%), and Emerging Markets (0.40%)
  • Laggards: Energy (-0.56%), Healthcare (-0.28%), and Commodities (-0.14%)
  • 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: Managed Futures (0.21%), Latin America (0.17%), and Healthcare (0.13%)
  • Alpha laggards: Emerging Asia (-0.16%), Merger Arbitrage (-0.15%), and Equity Long Only (-0.13%)

eqira_hf_proj_20170804

Global Benchmarks

  • Global portfolios inched higher last week amid modest gains in equities and fixed income securities
  • Leaders: US financials equity (1.47%), US utilities equity (1.36%), and Latin America equity (1.32%)
  • Laggards: agricultural commodities (-2.96%), US MLPs (-1.42%), and US energy equity (-1.23%)
  • Equities: Equities gained just 0.36% globally, but rose in nearly all major regions. Foreign stocks outperformed, with widespread gains across developed and emerging markets. Among US sectors, financials (+1.47%) and utilities (+1.36%) performed the best and energy (-1.23%) and consumer staples (-0.66%) the worst. Our US style indexes produced mixed results, with large caps and value stocks rising and small caps and growth stocks falling.
  • Bonds: Although bonds added only 0.18% worldwide, all of our major fixed income benchmarks rose. US Treasuries, in aggregate, tacked on 0.20%, with the largest gains coming at longer maturities. 10-year US Treasuries returned 0.29%. US inflation-linked bonds added 0.08% and each of our main credit indexes edged higher. Gains were slightly higher overseas as our developed ex-US high yield index added 0.38% to end the week as our best performing fixed income benchmark.
  • Real Estate: Real estate securities fell 0.26% in the US and rose 0.18% internationally, losing 0.04% globally.
  • Commodities: Commodities dropped by 0.95% as agricultural futures slipped 2.96%. Base metals was the only major sector to rise as it added 0.69%. Energy and precious metals finished down by 0.28% and 1.10%, respectively. Oil futures lost 0.24% while gold futures gave back 0.82%.
  • Currencies: Both developed and emerging market currencies depreciated against the dollar, losing 0.36% and 0.08%, respectively.
  • Multi-Asset: Each of our multi-asset class benchmarks rose, with risk parity strategies modestly outperforming 60/40 strategies. Our global and US-centric risk parity portfolios performed similarly, each gaining slightly more than half a percent.

eqira_gb_20170804

eqira_gb_top_movers_w01_20170804

eqira_gb_top_movers_mtd_20170804

Market Factors

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

  • Leaders: 1-year developed market equity country momentum (2.93%), the spread between US listed private equity and small cap equity (1.83%), and 1-year emerging market equity sector momentum (1.75%)
  • Laggards: US equity size (-1.91%), US equity index size (-1.69%), and 1-month commodity momentum (-1.05%)
  • Commodity: Our alternative commodity betas split, with trend following and short-term momentum strategies falling and term structure and medium-term momentum factors rising. Term structure was the best performer, adding 1.13%.
  • Credit: Credit factors mostly fell in the US, with underperformance increasing with duration. High yield strategies lagged investment grade in the US, but outperformed investment grade in foreign markets.
  • Equity: Size factors declined globally, but the worst performance came in the US where our single stock size factor dropped 1.91%. Value, on the other hand, gained 0.39%. Momentum strategies performed very well, with our medium-term US factor rising 1.71% and our medium-term developed country index factor soaring 2.93%. Trend following strategies did not rise as much as momentum strategies, but posted gains nevertheless.
  • Fixed Income: Term structure strategies performed well, with our 10-year/1-year spread factors gaining 0.45% in the US and 1.18% in Europe. Inflation-linked securities lagged nominal bonds in the US, trailing by 0.68% at the 10-year maturity.
  • Foreign Exchange: Our currency value factor gained 1.14%, but our other alternative betas produced modest results. Carry and momentum gained 0.06% and 0.01%, respectively.
  • Multi-Asset: Our multi-asset class trend following and medium-term momentum factors added 0.20% and 0.52%, respectively, but our short-term momentum factor dipped 0.12%.
  • Real Estate: Real estate securities outperformed small cap equities by 0.50% in the US and 0.56% abroad.
  • Risk: Most of our short volatility and variance factors appreciated modestly, led by our VIX term structure factor’s 0.63% gain.
  • Momentum: Trend following strategies produced mixed results, but medium-term momentum strategies profited almost unanimously.

eqira_mf_20170804

eqira_mf_top_movers_w01_20170804

eqira_mf_top_movers_mtd_20170804

July 2017 Projection Review

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

Connect With Us

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