The Wilshire Liquid Alternative Index, which provides a representative baseline for how the broad liquid alternative investment category performs, returned 0.01 per cent in January, outperforming the -0.16 per cent monthly return of the HFRX Global Hedge Fund Index.
The Wilshire Liquid Alternative Index family aims to deliver precise market measures for the performance of diversified liquid alternative investment strategies implemented through mutual fund structures, backed by a proprietary classification methodology.
“The ‘Reddit Rebellion’ dominated headlines in January as investors’ support of heavily shorted stocks led to an outsized short squeeze and subsequent technical deleveraging in US equity markets, bringing markets down for the month,” says Jason Schwarz, President and Chief Operating Officer of Wilshire.
The Wilshire Liquid Alternative Equity Hedge Index℠ ended the month down -0.42 per cent, outperforming the HFRX Equity Hedge Index’s return of -1.04 per cent.
US equity markets experienced an unusual January as managers were caught under the “Reddit Rebellion” wave, leading to a sharp deleveraging as the month closed. According to prime brokers, this was the most severe deleveraging in terms of volume since 2008.
Managers exposed to crowded, high short interest stocks in the US suffered greatly. As these funds sought to cover their short positions, there was a contagion effect in US equity markets due to the subsequent deleveraging. Value managers with Japanese exposure enjoyed a positive January as they were not affected by the Reddit-fueled contagion.
The Wilshire Liquid Alternative Event Driven Index ended the month up 1.03 per cent, outperforming the HFRX Event Driven Index’s monthly return of 0.62 per cent.
Merger arbitrage managers enjoyed a positive January as M&A activity persisted into the new year. Competitive pricing pressure has led to higher bids for targets and greater shareholder return. In addition, SPACs have continued to contribute positive returns for event driven managers.
The Wilshire Liquid Alternative Global Macro Index℠ ended the month down -0.25 per cent, outperforming the HFRX Macro/CTA Index’s monthly return of -0.58 per cent.
While the macro space was generally insulated from U.S. equity deleveraging, managers had a muted but negative month with losses stemming from a sell-off and reversal in fixed income early in the month as well as general USD strength. These losses were partially offset by robust gains in long commodity positions.
The Wilshire Liquid Alternative Relative Value Index ended the month up 0.17 per cent, underperforming the HFRX Relative Value Arbitrage Index’s monthly return of 0.32 per cent.
Structured credit markets enjoyed a positive month as secondary spreads tightened, and curves flattened across most sectors.
Relative value convertible arbitrage managers enjoyed a modestly positive month as volatility picked up towards the end of January.
The Wilshire Liquid Alternative Multi-Strategy Index, which includes both single and multi-manager funds, returned -0.03 per cent in January.
