Wilshire Liquid Alternatives Index Falls -1.95% in December, -3.52% for Full Year

Jan 21 2016 | 6:39pm ET

Liquid alternatives underperformed the broader equity and bond markets as well as their hedge fund peers in December, according to new data from Wilshire Fund Management. 

Wilshire’s Liquid Alternative Index, which provides a representative baseline for how the broad liquid alternative investment category performs, returned -1.95% in December, compared to -1.33% return for HFRX Global Hedge Fund Index.

For the full year, Wilshire’s Liquid Alternative index fell -3.52%, according to a company statement. 

Meanwhile, the Wilshire Liquid Alternative Multi-Strategy Index, which includes both single and multi-manager funds, ended the month down -2.29%. 

The Wilshire Liquid Alternative Event Driven Index, which includes credit, merger arbitrage and special situations funds, declined -2.44%, underperforming the HFRX Event Driven Index, which was down -0.93%. Gains from merger arbitrage strategies were more than offset by losses from credit strategies, which experienced drawdowns as lower quality corporate credits continued to decline during the month. 

The Wilshire Liquid Alternative Relative Value Index, which includes credit, convertible arbitrage and volatility funds, finished the month down -1.37%, outpacing the -1.92% return of the HFRX Relative Value Arbitrage Index by 55 basis points.

“High yield credit continued to detract from credit relative value strategies as spreads widened for the second month in a row,” said Jason Schwarz, president of Wilshire Funds Management.  “Volatility managers experienced mixed performance during the month and the 10 largest relative value managers were down an average of 85 basis points in December.”

The Wilshire Liquid Alternative Global Macro Index, which includes systematic, discretionary, commodity and currency funds, ended December down -2.66%, 126 basis points below the HFRX Macro/CTA Index’s -1.40% monthly return. The majority of systematic CTA and discretionary managers posted negative returns for the month. Longer-term trend followers suffered more than shorter term trend followers, while discretionary managers had mixed results based on currency exposures.

Equity hedge strategies were down for the month, as gains from market neutral and quantitative equity managers were offset by softer performance from long-biased value managers. The Wilshire Liquid Alternative Equity Hedge Index, which includes long/short equity and market neutral funds, was down -2.19% for the month, underperforming HFRX Equity Hedge Index, which was down -1.10%, by 109 basis points.

Wilshire noted that a total of 84 new liquid alternative funds were launched in 2015, broken down into 34 equity hedge, 22 multi-strategy, 14 relative value, nine global macro funds and five event driven funds. 

The company also noted a $29.1 billion decrease in the AUM of the liquid alternative universe last year. Looking into 2016, Wilshire expects heightened volatility as interest rates continue to rise, which it believes makes the liquid alternative asset class an important tool for investors navigating changing markets.

The company’s Wilshire Liquid Alternative index family aims to measure the performance of diversified liquid alternative investment strategies implemented in mutual fund structures.

Founded in 1972, Wilshire Associates is an independent investment consulting and services firm that provides plan sponsors, investment managers and financial intermediaries with a wide range of services. Its business units include Wilshire Analytics, Wilshire Consulting, Wilshire Funds Management and Wilshire Private Markets, and it is home to the Wilshire 5000 Total Market Index.

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