The Wilshire Liquid Alternative Index, which provides a representative baseline for how the broad liquid alternative investment category performs, fell 0.32 per cent in October, outperforming the 0.57 per cent decline for the HFRX Global Hedge Fund Index.
The Wilshire Liquid Alternative Multi-Strategy Index, which includes both single and multi-manager funds, fell 0.73 per cent in October.
The Wilshire Liquid Alternative Index family is a joint offering between Wilshire Funds Management, the global investment management business unit of Wilshire Associates Incorporated, and Wilshire Analytics, creator of the Wilshire 5000 Total Market Index.
The Wilshire Liquid Alternative Equity Hedge Index, which includes long/short equity and market neutral funds, declined to -0.41 per cent in October, outperforming the HFRX Equity Hedge Index by 43 basis points.
Long-biased equity managers detracted 56 basis points from Index performance, as equity markets reacted negatively to an uncertain political environment and a potential increase in interest rates by the Federal Reserve. Long-biased value managers exhibited more resilience during this turbulent month as they benefited from positioning that was long large cap stocks and short expensive small cap stocks.
Market neutral strategies contributed 13 basis points to the Index return, while short biased managers contributed just 3 basis points. Exposure to the healthcare, telecommunication services, and energy sector exposures contributed negatively to returns in October.
The Wilshire Liquid Alternative Global Macro Index, which includes systematic, discretionary, commodity and currency funds, ended October down 1.19 per cent, outperforming the -1.58 per cent return for the HFRX Macro/CTA Index.
Once again, CTAs struggled as the lack of trends in the market continued to detract from manager performance. A strong US dollar was the main positive trend, but given the reduction in US dollar exposure by CTAs many managers were not able to take advantage. Systematic managers/CTAs contributed the majority of the losses in the Index, while discretionary managers were relatively flat, contributing just 8 basis points of positive return.
“Discretionary managers were not nearly as affected by the choppy markets given that many managers have had a more defensive, risk off investment profile going into the election,” says Jason Schwarz, president of Wilshire Funds Management.
The Wilshire Liquid Alternative Event Driven Index, which includes credit, merger arbitrage and special situations funds, returned -0.03 per cent in October, outperforming the HFRX Event Driven Index by 10 basis points. Credit managers contributed 25 basis points to Index performance, benefitting from the continued rally in high yield bonds. Merger arbitrage strategies were negative as a group, detracting 23 basis points from Index performance as investors cautiously monitored deal risk in the uncertain political environment. Multi-strategy event managers were also negative, detracting 7 basis points from the Index return.
The Wilshire Liquid Alternative Relative Value Index, which includes credit, convertible arbitrage and volatility funds, finished the month up 0.27 per cent, outperforming the HFRX Relative Value Arbitrage Index which ended the month flat. For the second month in a row, performance was driven almost entirely by credit managers who benefited from relatively stable investment grade and high yield credit spreads. Credit managers contributed 23 of the 27 basis points of return, while multi-strategy managers contributed another 6 basis points of return. Volatility managers detracted slightly from performance and convertible arbitrage managers were relatively flat for the month.
