Wilshire Liquid Alternatives Index Press Release July 2023

Santa Monica, Calif., July 12, 2023 – The Wilshire Liquid Alternative Index^SM, which provides a representative baseline for how the broad liquid alternative investment category performs, returned 1.07% in June and 1.16% in the second quarter, outperforming a 0.76% monthly and 0.59% quarterly return for the HFRX Global Hedge Fund Index. The Wilshire Liquid Alternative Index family aims to deliver precise market measures for the performance of diversified liquid alternative investment strategies implemented through mutual fund structures, backed by a proprietary classification methodology.

Following the debt ceiling resolution early in the month, equity markets moved higher in June. Despite increasingly stretched price-to-earnings ratios, a higher interest rate environment, and tight labor markets, the S&P 500 returned 17% in the first half of 2023, with technology, and more specifically AI-associated stocks, driving much of the gains.

The Wilshire Liquid Alternative Equity Hedge Index^SM ended the month up 0.84%, underperforming the HFRX Equity Hedge Index’s return of 1.27%. For the quarter, the Wilshire Liquid Alternative Equity Hedge Index^SM returned 3.39%, outperforming its HFRX counterpart’s return of 1.94%.

• The quarter began well for equity hedge managers, who benefited from a rally in equities largely due to a better than expected earnings season and returning optimism within the domestic tech sector. Asia-focused managers were the laggards of the quarter, with the first two months being particularly hard on Chinese equities.
• Equity hedge managers, both market-neutral and directional, performed positively during the month across various regions. However, there was a significant shift in the third week of June with the largest net equity selling since September 2022, primarily driven by short additions of index products.

The Wilshire Liquid Alternatives Event Driven Index^SM ended the month up 0.84%, outperforming the HFRX Event Driven Index’s monthly return of 0.38%. For the quarter, the index returned -0.30%, outperforming its HFRX counterpart’s return of -2.79%.

• While special situations strategies benefited from the continued equity market rally in the second quarter, merger arbitrage strategies struggled in April and May, most notably among positions in the Activision/Blizzard and First Horizon/Toronto Dominion deals. Overall, merger spreads widened and mid-cap index multiples traded down.
• Event-driven managers showed some recovery in June, particularly in merger arbitrage. Not only did they recover from some of the trades most affected in May, such as Horizon Pharma and Seagen, but some pre-event positions, such as Network International and Dechra Pharmaceuticals also became binding further contributing to positive performance.

The Wilshire Liquid Alternative Multi-Strategy Index^SM, which includes both single- and multi-manager funds, returned 1.74% in June and 1.13% for the quarter.

The Wilshire Liquid Alternative Global Macro Index^SM ended the month up 1.16%, outperforming the HFRX Macro/CTA Index’s monthly return of 0.55%. For the quarter, the index returned 3.43%, outperforming its HFRX counterpart’s return of 3.04%.

• Macro managers had a strong second quarter driven by successful currency trades and long positions on Latin American commodity producers in April, short positions in the euro and commodities alongside long positions in emerging-market bonds generating positive returns in May, and a relatively strong June.
• Discretionary macro managers saw a small positive month, benefiting from shifting investor expectations in fixed income themes and successful carry trades in foreign exchange. However, late-cycle themes produced mixed results, with U.S. Treasury curve steepeners struggling while equity expressions largely profited. Systematic macro strategies had a mixed month with trend followers performing relatively well and other quant strategies suffering.

The Wilshire Liquid Alternative Relative Value Index^SM ended the month up 0.01%, underperforming the HFRXRelative Value Arbitrage Index’s monthly return of 0.74%. For the quarter, the index returned -0.30%, underperforming its HFRX counterpart’s return of 0.97%.

• The second quarter produced mixed results among relative value managers. After the regional banking crisis in March, the VIX Index has consistently declined with the main remaining contributors being the banking and energy sectors. Credit markets have remained relatively strong and the Federal Reserve’s rhetoric has remained relatively hawkish despite no rate hike in June.  
• Relative value managers had a mixed month, a lower VIX Index at the end of the month and continued strength of equity markets suggest a lower volatility environment and potentially tighter spreads, challenging their ability to generate alpha.

About Wilshire

Wilshire is a global provider of market-leading indexes, advanced analytics, and multi-asset investment solutions. A trusted partner toa diverse range of more than 500 leading institutional investors and financial intermediaries, our clients rely on us to improve investment outcomes for a better future. Wilshire advises on over $1.3 trillion in assets and manages $86 billion in assets and is headquartered in the United States with offices worldwide.

More information on Wilshire can be found at www.wilshire.com.

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