The Wilshire Liquid Alternative Index, which provides a representative baseline for how the broad liquid alternative investment category performs, returned 0.13 per cent in September, outperforming the -0.69 per cent monthly return of the HFRX Global Hedge Fund Index.
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.
“Despite continued geopolitical risks and trade disputes, equity and credit markets rallied in the third quarter. Economic fundamentals remained solid, particularly in US markets, which drove asset prices higher,” says Jason Schwarz (pictured), President of Wilshire Funds Management and Wilshire Analytics. “On the other hand, emerging markets continued to experience heightened risk-awareness as the region grappled certain headwinds such as a stronger US dollar.”
The Wilshire Liquid Alternative Multi-Strategy Index, which includes both single and multi-manager funds, returned 0.22 per cent in September.
The Wilshire Liquid Alternative Global Macro Index, which includes systematic, discretionary, commodity and currency funds, ended the month down 0.25 per cent, outperforming the -0.63 per cent return of the HFRX Macro/CTA Index. The Index finished the third quarter in positive territory, returning 0.51 per cent, but underperformed the HFRX Macro/CTA Index’s quarterly return of 0.64 per cent. CTA’s were a positive contributor on the quarter, as a strong August for equities modestly outweighed negative months in July and September. Many discretionary macro strategies remained long US dollar, but managers who got caught on the wrong side of the stress in certain emerging markets and areas of Europe brought down the index average.
The Wilshire Liquid Alternative Relative Value Index, which includes credit, convertible arbitrage and volatility funds, finished the month up 0.20 per cent, outperforming the 0.13 per cent return of the HFRX Relative Value Arbitrage Index. The second quarter’s 0.38 per cent performance was in line the HFRX counterpart’s 0.39 per cent return. Relative value strategies were uneventful on the quarter, with the exception of a few volatility arbitrage strategies that were hurt by large idiosyncratic currency moves in regions like Turkey. Credit and convertible arbitrage managers were generally positive on the quarter. Structured credit spreads were stable, but managers with corporate credit exposure did notably well, particularly because of the recovery in the energy sector.
The Wilshire Liquid Alternative Equity Hedge Index, ended September up 0.15 per cent and the third quarter up 2.39 per cent, outperforming the HFRX Equity Hedge Index’s monthly and quarterly returns of 1.63 per cent and -1.14 per cent, respectively. Value-oriented strategies underperformed throughout the quarter as their long positions underperformed growth-oriented investments in Healthcare, Information Technology and Consumer Discretionary sectors. Certain factor-based strategies underperformed as several risk-premia strategies compressed in 2018. Covered call strategies outperformed this quarter, benefiting from rising equity markets. Moreover, domestic strategies outperformed global strategies as European and emerging market equities grappled with rising US dollar and strained trade relations.
The Wilshire Liquid Alternative Event Driven Index, which includes credit, merger arbitrage and special situations funds, ended September and the third quarter up 0.30 per cent and 0.58 per cent, respectively, outperforming the -0.51 per cent and -1.07 per cent monthly and quarterly returns of the HFRX Event Driven, respectively.
Merger arbitrage strategies were positive as a group, but posted mixed results across managers due to a notable telecommunications deal-break in July. Despite the volatile July, August and September were positive months for merger arbitrage as equity markets rallied and the environment remained accommodative to merger transactions. Credit managers outperformed as credit spreads remained tight amid favourable fundamentals.
