Global Liquid Alts Index Climbs in November on Strong Dollar, Oil Selloff
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.
For the month of November, the DJIA was up 2.52%, the Wilshire 5000 rose 2.48%, and the Barclays Aggregate Bond Index returned 0.70%. Meanwhile, 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. Over the course of the month, oil continued to sell off and the U.S. dollar continued to strengthen.
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.