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Alpha Theory 2018 Year In Review

Feb. 11, 2019 5:03 AM ET
Cameron Hight profile picture
Cameron Hight
39 Followers

Summary

  • For the seventh consecutive year, Alpha Theory clients have outperformed their peers, more than doubling the returns of the industry average over the same period.
  • From a global perspective, Alpha Theory clients and optimal sizing outperformed major indices.
  • Clients would have done even better if they would have more closely followed the model they built in Alpha Theory.

The Streak Continues! For the seventh consecutive year, Alpha Theory clients have outperformed their peers, more than doubling the returns of the industry average over the same period. This year, our clients beat the primary Equity Hedge index by 3.9% despite missing out on 0.9% of return if they more closely followed the model they built in Alpha Theory.

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From a global perspective, Alpha Theory clients and optimal sizing outperformed major indices.

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Despite the difficult year for equity funds, including our clients, who averaged a decline of 3.0%, they still outperformed their peers who experienced an average decline of 6.9%.

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Clients would have done even better if they would have more closely followed the model they built in Alpha Theory.

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It was a particularly satisfying year to post these results. The streak of momentum-fueled markets transitioned into one with much higher volatility in 2018 and it was great to see that our tool is effective at driving alpha in both types of market conditions.

2018 Industry Trends

Some new trends have started to gain traction across the industry in 2018. While some larger funds have been headed in this direction for years, the change we saw in 2018 was more widespread adoption-even in smaller funds. As we talked to hundreds of prospective clients and allocators in 2018, we noticed three major trends in how the most successful PMs are changing their investment strategies:

1. Leveraging more alternative data sources in their research.

2. Acute focus on repeatable processes around research, risk, and position sizing.

3. Emphasis on capturing data that can leverage statistical analysis and machine learning.

At first, these three trends seemed unrelated. It was only recently that we realized that they are deeply connected by one dominant trend: the reduction in available alpha due to the ubiquity of research data, increased number

This article was written by

Cameron Hight profile picture
39 Followers
Prior to founding and developing Alpha Theory in 2005, Cameron worked as an equity research analyst for 10 years, covering primarily technology companies and supporting over $20B in transactions for firms such as Lehman Brothers, CIBC (NYSE: CM) and Credit Suisse First Boston (NYSE: CS) before joining Afton Capital Management, a $200M long-short equity hedge fund, in 2002. He currently sits on the boards of several funds and financial technology start-ups as well as the UNC-Chapel Hill Business School Investment Fund. Cameron earned his Business degree from the University of North Carolina at Chapel Hill and became one of the youngest ever to receive the Chartered Financial Analyst (CFA) designation in 1999. It was on the buy-side that Cameron became aware of the avoidable mistakes investment managers were making causing lost performance and he vowed to solve the problem. When he told his grandmother why he was starting Alpha Theory, she looked at him and asked, "You mean they're not doing this already?" and he knew at that moment he had a responsibility to help bring about a change in the industry. Today, Cameron spends his time deepening his knowledge on important topics in behavioral finance, decision sciences, portfolio management and acting as a thought leader to investment managers on investment process "best practices" through direct communication at conferences and seminars, on TV and Radio, and through the written word. Cameron is an avid golfer, Citi-biker, runner, a technology early-adopter, magician (he taught his three year old and one year old daughters to love sushi) and a die-hard Tarheel fan.

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