Wilshire Liquid Alternative Index Gains 0.20% in December

Jan 11 2017 | 11:52pm ET

Liquid alternatives rose in December but still 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 0.20% during the month, the company said in a statement. The measure underperformed the 0.86% return booked by its comparable hedge fund industry benchmark, the HFRX Global Hedge Fund Index. 

Performance among Wilshire’s five liquid alternative substrategy indices was mixed during the month, with three in the green, one in the red and one flat. 

The Wilshire Liquid Alternative Equity Hedge Index, which includes long/short equity and market neutral funds, gained 0.29% in the month, outperforming the HFRX Equity Hedge Index by 11 basis points. Long-biased equity managers were the largest contributors to index performance, the company said, as equity markets rallied into the year-end. 

Following positive performance in November, long-biased value managers once again exhibited strong performance due to their positions in companies expected to benefit from a more favorable regulatory environment for financial institutions. Exposure to small-cap stocks was materially beneficial; the Russell 2000 Index outperformed the Russell 1000 Index by 90 basis points in December. Exposure to the Financials, Utilities and Consumer Staples sectors was also materially positive in December.

Also in positive territory for the month was Wilshire’s Liquid Alternative Multi-Strategy Index, which includes both single and multi-manager funds and returned 0.38% in December. Meanwhile, Wilshire’s Liquid Alternative Relative Value Index, which includes credit, convertible arbitrage and volatility funds, gained 0.19%, underperforming the +0.83% return in HFRX’s Relative Value Arbitrage Index. The post-election rally continued, and credit managers who took advantage of spread compression through the remainder of the year contributed the majority of return, Wilshire said. 

The Wilshire Liquid Alternative Global Macro Index, which includes systematic, discretionary, commodity and currency funds, ended December down -0.01%, underperforming the 0.48% return of the HFRX Macro/CTA Index. CTAs reversed their four-month streak of negative returns, posting positive returns in December due to positive trends in both the energy and equity markets. 

“Systematic and discretionary managers took advantage of these continued trends in December, reversing the negative performance they exhibited in November,” said Jason Schwarz, president of Wilshire Funds Management, in the statement. “Although currency managers were neutral performers in December, some managers benefitted from positioning that was long USD and contributed to positive returns for the month.”

Meanwhile, The Wilshire Liquid Alternative Event Driven Index, which includes credit, merger arbitrage and special situations funds, was flat in December, underperforming the HFRX Event Driven Index by 192 basis points. Credit managers were the largest contributors to index performance, as corporate credit markets experienced positive market technicalities and price appreciation, and credit risk managers benefitted from a gain of 370 basis points in CCC rated junk bonds.

As a result, special situations credit and equity positions also benefited in December, as merger arbitrage and multi-strategy funds were positive as a group, Wilshire said.

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, and it is home to the Wilshire 5000 Total Market Index. 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.

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