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Posted by on Feb 4, 2016 in Commerce Asset Management, Market Insight

Exactly How Bad Was January?

Exactly How Bad Was January?

Kurt Voldeng is the Chief Investment Officer of Commerce Asset Management LLC and Portfolio Manager of the AdvisorShares QAM Equity Hedge ETF (QEH).

No one likes negative returns, but when it gets bad – I mean really bad – and there is no place to hide besides cash or being outright short (way too risky for most), better relative returns help soften that pain. In January, the S&P 500 was down roughly -5%. This decline doesn’t sound awful but mid-month, it was down -11% at its lowest point. Our estimate for Long/Short Equity, as measured by the HFRI Equity Hedge (Total) Index, is -4%. This number seems only slightly better than the S&P 500 until a more holistic view of the global equity markets is reviewed.

If one goes outside of the S&P 500 – a large company biased market cap-weighted, U.S. centric benchmark index – a truer picture of the environment can be seen.  Take for instance the January performance of the following indexes:

MSCI EAFE (developed non-U.S.) -7.22%,
MSCI Japan -7.95%,
MSCI Germany -8.80%
Russell 2000 (small cap U.S.) -8.85%,
S&P 500 Financials Sector -8.85%
MSCI BRIC -10.02%,
S&P 500 Materials Sector -10.57%,
MSCI China -12.34%,
Alerian MLP -11.10%,
Nasdaq Biotechnology -21.01%.

Source: Bloomberg

January was truly a tough month in the equity markets, and upon further review, Long/Short Equity being down 4% as a group doesn’t look so bad. This is a key point of understanding for hedge fund replication. As the name “hedge” obviously implies a measure of protection, which as shown last month, can include relative outperformance during trying times.

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