The Wilshire Liquid Alternative Index, which provides a representative baseline for how the broad liquid alternative investment category performs, returned -1.59 per cent in December, outperforming the -1.93 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.
“Fourth quarter observed a sharp reversal of sentiment following the market’s concerns of a less accommodative monetary policy and strained trade relations abroad,” says Jason Schwarz (pictured), President of Wilshire Funds Management and Wilshire Analytics. “As a result, equities declined and credit assets, such as high yield corporate bonds, were stressed.”
The Wilshire Liquid Alternative Multi-Strategy Index, which includes both single and multi-manager funds, returned -2.06 per cent in December.
The Wilshire Liquid Alternative Global Macro Index, which includes systematic, discretionary, commodity and currency funds, ended the month up 0.18 per cent, underperforming the 0.76 per cent return of the HFRX Macro/CTA Index. The Index finished the fourth quarter in negative territory, returning -2.79 per cent, and underperformed the HFRX Macro/CTA Index’s quarterly return of -2.09 per cent. Discretionary macro strategies were mixed as usual, but generally benefited from higher volatility, particularly as it relates to interest rate volatility around fed meetings. CTA’s dragged the macro index down for the quarter, despite a generally positive December.
The Wilshire Liquid Alternative Relative Value IndexSM, which includes credit, convertible arbitrage and volatility funds, finished the month down -0.61 per cent, outperforming the -2.02 per cent return of the HFRX Relative Value Arbitrage Index. The index returned -1.46 per cent in fourth quarter, outperforming the HFRX counterpart’s fourth quarter return of -3.68 per cent. Volatility remained elevated for much of the quarter, which generally benefited volatility arbitrage strategies. Corporate credit sold off to close out the year, as did structured credit to a lesser extent, which led to small negative prints for credit relative value strategies.
The Wilshire Liquid Alternative Equity Hedge Index, ended down for the month and the quarter, returning -3.97 per cent and -7.43 per cent, respectively, outperforming the HFRX Equity Hedge Index’s monthly and quarterly returns of -4.23 per cent and -8.59 per cent, respectively. Long/short equity managers detracted from returns in the fourth quarter as fears of a less-accommodative monetary policy and strained trade relations caused volatility to increase materially. While market neutral strategies were only down modestly, longer-biased managers detracted in sympathy with the markets. Covered call strategies detracted as option writing income was unable to absorb the sharply lower markets. Global multi-factor strategies underperformed as risk-premias compressed and global equities underperformed U.S. markets. In a reversal of prior trends, value-oriented managers outperformed growth counterparts as investor optimism turned to caution. Additionally, technology and energy investments were notable detractors.
The Wilshire Liquid Alternative Event Driven Index, which includes credit, merger arbitrage and special situations funds, ended December and the fourth quarter down -1.01 per cent and -1.65 per cent, respectively, outperforming the HFRX Event Driven Index’s monthly and quarterly returns of -1.18 per cent and -6.53 per cent, respectively. Credit managers posted negative returns as lower-rated corporate credit, particularly energy-related exposure, performed poorly, given oil’s precipitous decline and broad market concerns around less accommodative monetary policy. Despite the significant market volatility, losses were partially alleviated by merger arbitrage strategies, which were positive as a group as they tend to invest in idiosyncratic merger agreements.
