The Wiltshire Alternative Index, which provides a representative baseline for how the broad liquid alternative investment category performs, returned 0.97 per cent in March, outperforming the –0.06 per cent monthly return of the HFRX Global Hedge Fund Index.
The Wiltshire 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.
“Markets experienced a choppy first quarter as the ‘Reddit Rebellion’ and the following mass deleveraging in January preceded a bounce back in equity markets in February,” says Jason Schwarz, President and Chief Operating Officer Wilshire. As the 10-year yield rose in the second half of the quarter, a rotation of richly valued technology companies into cyclicals occurred. The Dox and S&P reached all-time highs while the NASDQ reversed course.”
The Wilshire Liquid Alternative Equity Hedge Index ended the quarter up 5.32 per cent, outperforming the HFRX Equity Hedge Index’s return of 2.66 per cent. Equity markets began the first quarter down as the “Reddit Rebellion” negatively affected shorting. This led to a sharp deleveraging as January closed, marking the most severe deleveraging in terms of volume since 2008. However, on the back of Q4 2020 earnings, equity markets enjoyed a positive February with alpha opportunities returning to create a favorable environment for long/short-investing. Growth-oriented managers outperformed their value counterparts early in February, but as the 10-year yield began to quickly rise, a factor rotation began to take place. March was a mixed moth for long/equity managers as the velocity of the rise in interest rates increased and capital rotated away from highly valued technology names to more cyclical names. The rise in yields coupled with the Covid-19 vaccine rollout and an improving Covid-19 landscape in the US exacerbated the rotation into cyclical and “re-opening” names.
The Wiltshire Liquid Alternative Event Driven Index ended the quarter up 1.79 per cent, outperforming the HFRX Event Driven Index’s quarterly return of 1.71 per cent. Merger arbitrage managers enjoyed a positive January and February as M&A activity persisted into the new year. Competitive pricing pressure on deals led to higher bids and/or hostile bids. The most active M&A sectors were pharmaceuticals, healthcare and technology. Furthermore, the popularity of SPACs contributed positive return to event driven managers. Although M&A activity persisted in March, returns surrounding deals diminished. Merger spreads continued to widen due to concerns around US anti-trust activity. SPACs precipitously sold off in March as the 10-year yield rose quickly and inflated prices decreased.