Wilshire Liquid Alternative Index Dips -0.32% in October

Nov 10 2016 | 10:31pm ET

Liquid alternatives stumbled in October along with their hedge fund brethren, according to new data from Wilshire Associates.

The Wilshire Liquid Alternative Index, which provides a representative baseline for how the broad liquid alternative investment category performs, fell -0.32% during the month. The measure outperformed the comparable hedge fund industry benchmark, the HFRX Global Hedge Fund Index, by 25 basis points. 

Results within Wilshire’s five substrategy index were mixed. The Wilshire Liquid Alternative Multi-Strategy Index, which includes both single and multi-manager funds, returned -0.73% in October. 

The Wilshire Liquid Alternative Equity Hedge Index, which includes long/short equity and market neutral funds, declined to -0.41% in October, outperforming the HFRX Equity Hedge Index by 43 basis points. Long-biased equity managers detracted 56 basis points from Index performance, as equity markets reacted negatively to an uncertain political environment and a potential increase in interest rates by the Federal Reserve. Long-biased value managers exhibited more resilience during this turbulent month as they benefited from positioning that was long large cap stocks and short expensive small cap stocks. Exposure to the Health Care, Telecommunication Services, and Energy sector exposures contributed negatively to returns in October. 

The Wilshire Liquid Alternative Global Macro Index, which includes systematic, discretionary, commodity and currency funds, led the group down October with a -1.19% return. However, this result still outperformed the -1.58% return for the HFRX Macro/CTA Index. Once again, CTAs struggled as the lack of trends in the market continued to detract from manager performance. A strong U.S. dollar was the main positive trend, but given the reduction in U.S. dollar exposure by CTAs, many managers were unable to benefit. Systematic managers/CTAs contributed the majority of the losses in the Index, while discretionary managers were relatively flat, contributing just 8 basis points of positive return. 

“Discretionary managers were not nearly as affected by the choppy markets given that many managers have had a more defensive, risk off investment profile going into the election,” said Jason Schwarz, president of Wilshire Funds Management.

Meanwhile, the Wilshire Liquid Alternative Event Driven Index, which includes credit, merger arbitrage and special situations funds, posted a flat -0.03% return in October, outperforming the HFRX Event Driven Index by 10 basis points. Credit managers contributed 25 basis points to index performance, benefitting from the continued rally in high yield bonds. Merger arbitrage strategies were negative as a group, as investors cautiously monitored deal risk in the uncertain political environment. 

On the plus side, the Wilshire Liquid Alternative Relative Value Index, which includes credit, convertible arbitrage and volatility funds, finished the month up 0.27%, outperforming the HFRX Relative Value Arbitrage Index, which ended the month flat. For the second month in a row, performance was driven largely by credit managers benefitting from relatively stable investment grade and high yield credit spreads. 

The Wilshire Liquid Alternative Index family is a joint offering between Wilshire Funds Management and Wilshire Analytics, creator of the Wilshire 5000 Total Market Index. It 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.

Based in Santa Monica, California, the firm provides services to clients in more than 20 countries representing more than 500 organizations with assets totaling more than $7 trillion, while Wilshire Funds Management advised on more than $153 billion as of June 30, 2016.

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