TraderPig

7 Comments

    • From The Horse’s Mouth: Yale's Endowment Officer Makes Financial Sense [view article]
      Dr. Considine,

      I've followed your ariticles for some time and would like to thank you for those very insightful thoughts.

      I noticed that you'd like to include some individual stocks into the portfolio with some broard market index products (index funds or ETFs). My question is: is the QPP tool suitable to analyse the risks/returns of these individual stocks? I'm actually not comfortable with the rusults of these stocks when the analysis only involves with 3-5 year data. There're too many non-systematic risks for the individual stocks.

      Thank you.

      TraderPig       Jan 24 04:18 PM
    • Select Foreign Index ETFs As Defensive Assets: Anything Doing? [view article]
      I read both Roger's and Geoff's blogs/sites. It seems to me you guys are from different background. Roger shows not much interest in statistics analysis as Geoff although he did mention the correlation tools several times on his blog, and he seems to base his portfolio management mostly on fundamental analysis. However, if you believe in numbers don't lie, it's very difficult to disagree with Geoff here as to what happned during the last 3-5 years to these foreign foreign country themes. Jan 26 09:45 PM
    • Portfolio Building With Forward Looking Asset Allocation [view article]
      Great article. Thank you, Dr. Considine. Jan 19 03:02 PM
    • Interview: Luciano Siracusano, Director of Research for ETF Firm WisdomTree Asset Management [view article]
      Hi Luciano,

      I purchased some shares of "WisdomTree International SmallCap Dividend Fund (DLS)", which as you said is the "first international smallcap ETFs". But MorningStar says it mainly consists of Medium(Mid) Cap companies. Any comments? Thank you.
      URL: quicktake.morningstar....;Symbol=DLS&fd...       Dec 11 02:56 PM
    • H&Q Life Science: Hold On, Its Time Is Coming [view article]
      hisham, I like your comments. Amusing and quite insightful. I'm considering HQL as some kind of good theme investing choice besides PHO/PBW..... Nov 17 11:49 AM
    • Can Retail Investors Profit From Hedge Fund Access? [view article]
      To SeekingAlpha: If you guys think my last post probably violates the copywright, pls. delete it. Nov 06 12:03 PM
    • Can Retail Investors Profit From Hedge Fund Access? [view article]
      The following comments are from the 9/06 issus of IndexInvestor.com
      ______________________...


      Private Equity Index Fund Registered

      We all knew it would eventually happen. And now it has. In early August, Powershares registered with the U.S. Securities and Exchange Commission a new "index fund" that will track the yet to be finalized "Red Rocks Listed Private Equity Index." Said "index" will include "stocks of securities and American depositary receipts ("ADRs") of approximately [_] publicly listed private equity companies, including business development companies ("BDC") and other financial institutions or vehicles whose principal business is to invest in and lend capital to privately-held companies (collectively "listed private equity companies")."... Let's put it this way: we're not going to rush out to invest in this ETF when it is launched. Why not? Because on average, the returns from investing in private equity are no higher than those from investing in a broad public equity market index. But this average hides a more important fact: most positive private equity returns are earned by the top quartile of private equity managers - the rest earn far less.

      Two recent research papers highlight why this is the case. In "Divisional Reverse Leveraged Buyouts: Finishing School or Financial Arbitrage?", Braun and Sharma compare a matched sample of divisions that were spun off by their parent companies via initial public offerings, to those which first go through an LBO before being IPO'd. They observe the latter outperform the former, and ask why this is so. They find that the LBO'd divisions start out with relatively superior operating performance, which remains unchanged while they are privately owned. The authors therefore conclude that the key driver of the superior IPO performance of the LBO'd divisions is superior deal selection and negotiation by private equity managers (in essence, their ability to buy the division from its owners for less than it is worth) rather than their ability to improve its operations before it is IPO'd. In another paper, "The Performance of Reverse Leveraged Buyouts", Cao and Lerner analyze 496 buyouts that were IPO'd between 1980 and 2002. They find much of the outperformance of these IPOs is concentrated in the larger deals. In the context of the soon-to-be-launched private equity "index" ETF, these studies raise a simple question: What are the chances that the relatively few private equity funds that will generate most of the returns from future buyout deals are going to be among those included in the index? In our view, the answer lies somewhere between slim and none.

      Three Interesting New Hedge Fund Studies

      We recently read three fascinating new studies of hedge fund performance. In "Hedge Funds: Performance, Risk and Capital Formation", Fung, Hsieh, Naik and Ramadorai study an extremely comprehensive database covering the performance 1,603 funds of funds between 1995 and 2004. They study funds of funds rather than individual hedge funds, because in today's environment more and more money is invested in hedge funds via this indirect route. Unsurprisingly, the authors find that there are significant differences across FOF's in terms of their ability to generate alpha for their investors. They also find differences among investors themselves, with some apparently skilled at identifying alpha generating FOFs, while others seem to simply chase returns, with no apparent skill at identifying alpha generators. Yet, like Berk and Green before them (in their famous paper, "Mutual Fund Flows and Performance in Rational Markets"), Fung, Hsieh, Naik and Ramadorai also find that in the hedge fund world, good times don't last. Funds that generate alpha receive larger inflows of new investment, which is associated with a decline in their future alphas. The authors conclude that their "findings suggest that there is an apparent mismatch between the supply and demand for alpha. On the one hand, capital appears to be seeking alpha. On the other hand, the supply of alpha appears to be drying up."

      In "A Portrait of Hedge Fund Investors: Flows, Performance and Smart Money", Baquero and Verbeek shed more light on the behavior of hedge fund investors by separating their investment and divestment decisions. Specifically, outflows take place relatively quickly, based on quarterly performance, while inflows are more closely linked to annual performance. The authors speculate that the former phenomenon may lead underperforming hedge fund managers to take on excessive risk to avoid losing assets. They also speculate that the slow pace of inflows may lead to investor overconfidence about hedge fund manager skills, as it leads to apparent performance persistence at the quarter-to-quarter time horizon. The authors show that this confidence is not warranted, as on average hedge funds receiving substantial inflows tend to underperform their respective style indexes.

      Finally, in "Can Hedge Fund Returns Be Replicated: The Linear Case", Hasanhodzic and Lo analyze the extent to which different hedge fund style returns can be replicated using linear combinations of six tradeable instruments: the U.S. dollar index futures, intermediate terms corporate AA rated bonds, the credit spread between BBB rated corporate bonds and U.S. treasury bonds, the S&P 500, GSCI, and VIX. Put differently, the authors attempt to replicate hedge fund returns using different combinations of stock, bond, credit, currency, commodity, and volatility risk. While full replication of hedge fund results proves impossible (due to the presence of alpha), the results the authors achieve will probably come as a surprise to many investors. Put another way, Hasanhodzic and Lo show that a surprisingly high proportion of hedge fund returns come not from alpha (i.e., exposure to unsystematic risk and manager skill), but rather from exposure to systematic risk (beta). This is not good news if you are paying 2% of the assets and 20% of the profits to a hedge fund manager, and perhaps another layer of fees to a fund-of-funds manager on top of that.       Nov 06 11:59 AM
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