Wilshire Liquid Alternative Index Gains 0.08% In November

Dec 9 2016 | 8:19pm ET

Liquid alternatives were positive in November but underperformed 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, gained 0.08% during the month. The measure significantly underperformed the 0.87% monthly return booked by HFRs HFRX Global Hedge Fund Index. 

Results within Wilshire’s five substrategy indexes were mixed. The Wilshire Liquid Alternative Multi-Strategy Index, which includes both single and multi-manager funds, returned 0.15% in November. Other index family members performed as follows:

The Wilshire Liquid Alternative Equity Hedge Index, which includes long/short equity and market neutral funds, gained 1.82% in November, outperforming the HFRX Equity Hedge Index by 35 basis points. Long-biased value managers were the strongest performers due to their positions in companies expected to benefit from future infrastructure plans and a more favorable regulatory environment for financial institutions. Exposure to small-cap stocks was materially beneficial, while the sharp rise in interest rates enabled certain managers to benefit from shorts in rate sensitive consumer staples and utilities companies. Exposure to the Energy, Materials, and Financials sectors was materially positive in November.

The Wilshire Liquid Alternative Global Macro Index, which includes systematic, discretionary, commodity and currency funds, ended November down -1.38%, underperforming the -0.69% return of the HFRX Macro/CTA Index and struggling for the fourth month in a row. Reversals in market trends challenged trend-following strategies, and there was a strong surge in equity markets, the U.S. dollar, and U.S. government yields following the election. Systematic managers/CTAs detracted 118 basis points in November, while discretionary managers, although managing the volatility and reversal, still contributed -32 basis points to negative returns.

The Wilshire Liquid Alternative Event Driven Index, which includes credit, merger arbitrage and special situations funds, gained 0.70% during the month, also underperforming the HFRX Event Driven Index by 112 basis points. Managers holding shorter-duration exposures fared better than managers with more rate-sensitive holdings. Special situation equity positions in small-cap energy and materials companies also benefitted in November. Merger arbitrage strategies and multi-strategy event managers were equally positive, both contributing 32 basis points to the index’s performance. 

The Wilshire Liquid Alternative Relative Value Index, which includes credit, convertible arbitrage and volatility funds, finished the month down -0.55%, starkly underperforming the HFRX Relative Value Arbitrage Index’s +0.45% gain. Managers were hurt by defensive positioning that was long Treasuries following the post-election increase in U.S. government yields. Credit managers contributed 30 of the 55 basis points of negative return while multi-strategy and volatility managers contributed the remaining 19 and 6 basis points of negative return, respectively. 

“As we saw in October, discretionary managers were positioned defensively going into the election and were not able to take advantage of the rally in the market,” said Jason Schwarz, president of Wilshire Funds Management. “As the U.S. dollar continued to strengthen, currency managers contributed 12 basis points of positive return in November.”

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 $157 billion as of September 30, 2016.

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