Alternative risk premia (ARP) performance positive for January

It is a new year and the underperformance of many alternative risk premia strategies in 2018 is now an old memory. Good performance heals past return wounds. While well-constructed alternative risk premia should not be highly correlated to market beta, they will be related to the investment regime. Risk premia are time varying.

The risk-on sentiment of January permeates the return behavior of these indices. Carry strategies in credit, currency, and rates all did well given their correlation with "good times". Momentum underperformed in many asset classes on the large sentiment reversal. The losers of last month turned into January winners. Levered small firms did well while low volatility and beta trailed other equity strategies. The return behavior of alternative risk premia showed consistency.

There is some selection bias with the construction of the HFR risk premia indices based on the set of banks who report their risk premia indices, but the indices do provide investors general information on risk premia return trends by asset class. Alternative risk premia can be good hedge fund substitutes and a simple way to diversify market risk at attractive cost.