The Wilshire Liquid Alternative Index, which provides a representative baseline for how the broad liquid alternative investment category performs, returned 0.08 per cent in November, underperforming the 0.87 per cent monthly return for the HFRX Global Hedge Fund Index.
The Wilshire Liquid Alternative Multi-Strategy Index, which includes both single and multi-manager funds, returned 0.15 per cent in November.
The Wilshire Liquid Alternative Equity Hedge Index, which includes long/short equity and market neutral funds, gained 1.82 per cent in November, outperforming the HFRX Equity Hedge Index by 35 basis points.
Long-biased equity managers detracted -1.69 per cent from Index performance, as equity markets reacted favourably to the US presidential election and the new administration’s emphasis on pro-growth economic policies.
Long-biased value managers were the strongest performers due to their positions in companies expected to benefit from future infrastructure plans and a more favourable regulatory environment for financial institutions.
Exposure to small-cap stocks was materially beneficial, with the Russell 2000 Index gaining 11.2 per cent for the month. Moreover, the sharp rise in interest rates enabled certain managers to benefit from shorts in rate sensitive consumer staples and utilities companies.
Market neutral strategies contributed 16 basis points to the Index return, while short-biased managers detracted eight basis points from the index return. Exposure to the energy, materials, and financials sectors was materially positive in November.
The Wilshire Liquid Alternative Global Macro Index, which includes systematic, discretionary, commodity and currency funds, ended November down -1.38 per cent, underperforming the -0.69 per cent return of the HFRX Macro/CTA Index. CTAs struggled for the fourth month in a row, posting negative returns, as reversals in market trends challenged trend-following strategies, and there was a strong surge in equity markets, the US dollar, and US government yields following the election.
Systematic managers/CTAs detracted 118 basis points in November, while discretionary managers, although managing the volatility and reversal, still contributed -32 basis points to negative returns in November.
“As we saw in October, discretionary managers were positioned defensively going into the election and were not able to take advantage of the rally in the market,” says Jason Schwarz (pictured), president of Wilshire Funds Management. “As the US dollar continued to strengthen, currency managers contributed 12 basis points of positive return in November.”
The Wilshire Liquid Alternative Event Driven Index, which includes credit, merger arbitrage and special situations funds, gained 0.70 per cent in November, underperforming the HFRX Event Driven Index by 112 basis points.
Credit managers contributed five basis points to Index performance as the corporate credit markets reacted to the rise in interest rates.
Managers holding shorter-duration exposures fared better than managers with more rate-sensitive holdings. Special situation equity positions in small-cap energy and materials companies also benefitted in November. Merger arbitrage strategies and multi-strategy event managers were equally positive, both contributing 32 basis points to Index performance.
The Wilshire Liquid Alternative Relative Value Index, which includes credit, convertible arbitrage and volatility funds, finished the month down -0.55 per cent, underperforming the HFRX Relative Value Arbitrage Index, which gained 0.45 per cent in November. Managers were hurt by defensive positioning that was long Treasuries following the post-election increase in US government yields.
Credit managers contributed 30 of the 55 basis points of negative return while multi-strategy and volatility managers contributed the remaining 19 and 6 basis points of negative return, respectively.
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.
