Hedge Fund Clones: Q2 2009 Rebalance Update

by Maz Jadallah

The leaderboard makes it easy to rank our entire clone universe based on criteria you define. Want the best performing single fund clones over a five year period based on sharpe ratio? It takes seconds to get at that list.

Since we've just rebalanced our clones we thought it would be interesting to see which fund group clones have performed the best year to date. You can see from the list below that consumer cyclical stocks have been a good place to invest this year, especially if they happen to be popular amongst top investors. Four of the five top performing fund group clones so far this year are "popularity clones" from our Sector Picks: Consumer Cyclical fund group. Granted three of the five clones have less than five holdings in any given quarter but one of them holds up to ten stocks and has returned nearly 100%. Which stocks have these clones owned through out the year? Amongst others, they include Goodyear Timer (GT), Coach Inc (COH) and Interface Inc. (IFSIA) all of which have had stellar performance this year.

Fund Group	Clone Strategy	YTD Return (total)
Sector Picks: Consumer Cyclical	Top 3 Popularity	136.2%
Sector Picks: Consumer Cyclical	Top 1 Popularity	123.8%
Sector Picks: Consumer Cyclical	Top 5 Popularity	112.1%
Sector Picks: Consumer Cyclical	Top 10 Popularity	96.1%
Cap Picks: Less than $500 million	Top 1 Popularity	92.0%

We display the performance of the holding clone at the top of our leaderboard largely because we think it is a good representative clone of the collective intelligence amongst our entire hedge fund universe. The clone invests in the top holding disclosed by each hedge fund in our database quarterly. The clone variant we show is hedged 50% using a simple S&P500 short (i.e. the clone is 100% long and 50% short). In a nutshell we think this clone is a good "index" of our cloning strategy against the broader market which (in our humble opinion) makes it a good ETF candidate. Here's how the clone has performed - note it's outperformed the market YTD despite being hedged 50%:

Returns	Clone	S&P�500
1m (total)	1.50%	5.30%
3m (total)	7.50%	16.30%
6m (total)	23.20%	39.70%
YTD (total)	17.80%	11.00%
1y (ann.)	4.60%	-24.10%
3y (ann.)	9.70%	-7.00%
5y (ann.)	9.70%	-0.10%
Since 2000 (ann.)	6.20%	-2.20%

The five most bought/sold stocks across our entire fund universe are listed below. On the bullish side, Bank of America (BAC) took the prize as the most bought stock with 55 funds establishing new positions and another 150 funds increasing their existing positions. In aggregate, top investor market value in BAC has increased more than three fold quarter over quarter. On the sell side, Rohm & Haas (ROH), Vnus Medical (VNUS) and CV Therapeutics were all delisted as a result of corporate actions (mergers, acquisitions, etc.).

MOST BOUGHT	Symbol	# Funds
BANK OF AMERICA	(BAC)	55
TYCO INTERNATIONAL LTD	(TYC)	45
NOBLE CORPORATION BAAR	(NE)	44
TIME WARNER INC	(TWX)	40
MYRIAD PHARMACUETICALS	MYRX	40
MOST SOLD	Symbol	# Funds
ROHM & HAAS	DELISTED	45
VNUS MEDICAL	DELISTED	30
CV THERAPEUTICS	DELISTED	30
MOTORS LIQUIDATING	(MTLQQ.PK)	29
TYCO ELECTRONICS LTD	(TEL)	26

Top five capitalization size categories were also unchanged on a quarter over quarter basis. Top investors still favor mid cap stocks over other equity capitalization categories but there has been a definite trend towards blue chips versus a year ago. Our largest cap size category (>$50 billion) was ranked fifth in Q2 2008, it's now ranked second:

	Q2 09	Q1 09		Q2 08
$1 billion to $5 billion	30.4%	30.8%	$1 billion to $5 billion	35.6%
Greater than $50 billion	23.6%	22.8%	$10 billion to $20 billion	17.0%
$20 billion to $50 billion	17.0%	17.2%	$20 billion to $50 billion	16.4%
$10 billion to $20 billion	15.8%	16.4%	Less than $500 million	15.9%
$5 billion to $10 billion	13.1%	12.7%	Greater than $50 billion	15.1%

Top five sectors by aggregate market value as a percent of total disclosed market values are unchanged quarter of quarter. Year over year the story is a bit different; Services is still the top sector but the Financials and Technology sectors have swapped the number two and three positions while Healthcare and Energy have swapped positions four and five.

	Q2 09	Q1 09		Q2 08
Services	28.7%	28.0%	Services	30.0%
Financial	25.7%	26.5%	Technology	21.3%
Technology	20.6%	20.1%	Financial	20.9%
Healthcare	14.8%	14.8%	Energy	17.5%
Energy	10.2%	10.7%	Healthcare	10.3%

Comments

[LoveShorting]

Thanks for some great short ideas (GT, COH, TYC, TWC, MYRX).

2009 Aug 27 09:16 AM

[Mad Hedge Fund Trader]

ghjk. There is no doubt that hedge funds have been the chief whipping boy for the financial crisis. Fear of short selling cabals and unnamed conspiracies abounded, leading to measures like short selling restrictions, stock lending bans, and punitive new taxes that only caused more damage. The industry even suffered a close call by almost being villainized in Oliver Stone’s upcoming sequel to his landmark film Wall Street. Industry veteran Jim Chanos talked him out of it. The industry is now at last organizing, creating its own Washington lobby group, the Coalition of Private Investment Companies (CPIC), with Chanos as the chairman. They have put up a polished website that provides some basic stats about the business, and seeks to shoot down some of the more egregious urban legends. To access their site at www.hedgefundfacts.org , click here.

2009 Sep 09 01:29 PM