Liquid Alternative Performance Update for November 2014

November was a much quieter month than October as we saw the markets continuously rise from the second half of October through the end of November. The Wilshire 5000 Total Market Index returned 2.48% for the month and the Wilshire Liquid Alternative Index, which provides a representative baseline for how the broad liquid alternative investment category performs, was up 0.57%, driven mainly by the strong performance of global macro managers. A recap of all six Wilshire indices is provided below, with commentary below the table.

Wilshire Liquid Alts Performance Nov 2014

  • The Wilshire Liquid Alternative Event Driven Index, which includes credit, merger arbitrage and special situations funds, ended the month down 0.12%. Event driven strategies predominantly invest in companies involved in corporate transactions including mergers, restructuring, and other capital structure changes. In November merger arbitrage-focused managers contributed positively to the Index, while more credit-focused event driven managers underperformed. Many managers found opportunities to shift money into Energy sector companies that were hit hard by the 18% monthly decline in oil prices. Though there are fears that oil prices will continue to decline, event driven managers will look to take advantage of strong companies that were unfairly punished by this macro event.
  • The Wilshire Liquid Alternative Equity Hedge Index, which includes long-short equity and market neutral funds, ended the month up 0.76%. As markets gradually moved higher, ultimately reaching record highs at the end of November, equity hedge managers rode the trend up, though not as aggressively as the broader equity market given these managers’ low net exposure.
  • The Wilshire Liquid Alternative Global Macro Index, which includes systematic, discretionary, commodity and currency funds, ended the month up 2.39%, its largest monthly return since May 2009 when the Index posted a 2.9% return and its fifth largest monthly return since 2006. Systematic managers, investment managers who rely on rules-based quantitative models to identify market opportunities, were the biggest contributors to Index performance, returning over 4% on average. These managers benefited both from the U.S. dollar strengthening against most currencies as well as the steep sell off in oil, which fell 10% on the last day of trading. Discretionary managers contributed positively as well, while commodity trader performance was mixed.
  • The Wilshire Liquid Alternative Relative Value Index, which includes credit, convertible arbitrage and volatility funds, ended the month up 0.10%, with most managers in the Index generating returns between +1%/-1%. Corporate credit strategies showed mixed results and convertible arbitrage managers contributed negatively to the Index. While European and U.S. yields fell, OPEC’s decision to keep production levels unchanged caused the European and U.S. high-yield markets to diverge. As some U.S. high yield indices contain as much as 18% exposure to the Energy sector, these indices have seen their value drop as yields widened due to increasing default risk in the sector.

We are pleased to welcome Wilshire Associates as a guest contributor to DailyAlts. This month’s liquid alternative performance report has been provided by Jason Schwarz. Jason is president of Wilshire Funds Management, a business unit of Wilshire Associates that delivers investment management services and solutions to financial institutions globally and has over $150 billion in assets under advisement. With nearly two decades of industry experience, he is Jason Schwarz Wilshireresponsible for launching Wilshire Advisor Solutions, the firm’s branded model portfolio business, which provides multi-asset, outcome-oriented and alternative investment solutions that encompass liquid alternatives. In conjunction with Wilshire Analytics, Wilshire’s investment technology foundation, Jason’s team recently launched the Wilshire Liquid Alternative Indices. The suite of seven indices are designed to provide relevant broad market and strategy-specific benchmarks for the universe of ’40 Act mutual funds that employ a liquid alternative strategy. Learn more at www.wilshire.com.

Investing in liquid alternatives can involve substantial risk of loss & is not suitable for everyone. Before opening an account and trading, you should seek advice from your advisors as appropriate to ensure that you understand the risks and can withstand the losses. Past results are not necessarily indicative of future results.

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