Liquid Alts Mostly Underperformed Hedge Funds In December

by: Brian Haskin

funds Liquid alternatives underperformed their hedge-fund counterparts in December, at least according to the Wilshire Liquid Alternative Index, which returned -1.95% for the month and trailed the HFRX Global Hedge Fund Index by 62 basis points. Liquid alts also fell short of the long-only S&P 500's returns, which came in at -1.58% in the final month of 2015.

The Wilshire Liquid Alternative Index is intended to provide a "representative baseline" for the broad liquid alternative investment category. The index is also broken down into individual styles:

  • Equity-hedge (long/short equity and market-neutral)
  • Event driven (credit, merger-arbitrage, and special situations)
  • Global macro (systematic, discretionary, commodity and currency funds)
  • Relative value
  • Multi-strategy (including both single-manager and multi-manager)

Of the five, liquid alts in the relative value category had the best performance in December, both in absolute and relative terms: the category's -1.37% returns gave it the month's lightest losses, and with the HFRX Relative Value Arbitrage Index, its hedge-fund counterpart, returning -1.92%, the Wilshire Liquid Alternative Relative Value Index outperformed by 55 basis points.

Overall, however, it was a tough month for the broad U.S. equities market, for hedge funds, and especially for liquid alts. While hedge funds also posted losses in December, they outperformed across all other categories: equity hedge (-1.10% for hedge funds vs. -2.19% for liquid alts), event driven (-0.93% vs. -2.44%), and global macro (-1.40% vs. -2.66%). The Wilshire Liquid Alternative Multi-Strategy Index, which has no hedge-fund counterpart, lost 2.29%.

"High yield credit continued to detract from credit relative value strategies as spreads widened for the second month in a row," said Wilshire Funds Management President Jason Schwarz. "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."

Past performance does not necessarily predict future results.

Jason Seagraves contributed to this article.