Category: Uncategorized
Carry – What to Watch With This Alternative Risk Premium
One of the core issues with alternative risk premia is not just determining whether they exist but how they will move through time. If alternative risk premia are time varying and associated with specific macro factors, it may be possible to tilt exposures based on current or future market conditions or avoid carry risk premia during those periods when expected returns will be lower.
Simple Alternative Risk Premia (ARP) Allocation – You Get Value
Investments in alternative risk premia (ARP) are way to access the important building blocks for returns and generate return streams that will not be highly correlated with market beta exposures. Through factors and styles like value, carry, momentum, and volatility, investors can generate unique return streams relative to asset class betas. To show the value of alternative risk premia, we have taken a broad based index constructed from HFR through bank swap products and compared against a standard 60/40 stock/bond index. The HFR index is new and represents only a portion of the growing ARP market and may not include the largest banks. Still, it may provide some insight on what realistic value can be added through investing in a portfolio of risk premia.
Don’t Worry About Investment Consultant Advice On Manager Performance – It Does Not Exist
How many times have you gone to a pension fund or endowment and heard the phrase, “You will have to check with my consultant”, or “If my consultant hasn’t approved you, I will not invest”. Pension consultants are powerful in the money management industry. Without their blessing, it is hard to grow an institutional money management business. There is the assumption by many that they have special investment powers that allow them to conduct due diligence and ferret information on managers that cannot be achieved my most others.
CTAs Show Strong Monthly Returns, But Hedge Funds In General Have Not Found Their Edge This Year
Whether, large-caps, small-caps, growth or value as measured by the major stock index benchmarks, US stocks markets are having a good year, but you would not know it if you saw August or year-to-date hedge fund style performance. Many hedge fund managers seem to have missed the big equity moves and not generated alpha. We find this especially odd since market dispersion and correlation numbers within indices show that there should have been a significant number of unique opportunities as measured by S&P Dow Jones Indices.
The New Era of “Sudden Stops” and Emerging Markets
The 1990’s were filled with emerging market failures through “sudden stops” – a sharp reversal of capital flows which led to declines in currencies, large increases in local interest rates, and sharp declines in equity market. Countries hit a funding wall.
Trend Environment Mixed – Limited Directional Moves Beyond US Equities
Using a combination of short, intermediate, and long-term trends across the major markets within a sector, we make judgments on potential trend behavior for the coming month. Our signals are surprisingly mixed as we move into the post-Labor Day period. While there are some upward and downward biased sectors, all seem more range bound with no consistency between short and longer-term trends. This was after a good trading month in August.
Risk-On In US, But Not For The Rest Of The World
Call it the pain of international diversification for 2018. With a significant divergence between US and international equities, the cost with holding DM and EM stocks has been significant. The differential between EM and US growth indices is over 25%. August just added to this different with fears of sudden stops in risky EM countries. Turkey and Argentina have both showed that credit flows can change quickly in a sensitive macro environment.
The Two Disconnects of 2018 – Market Behavior Versus Politics and US Versus International Equities
What can be called the twin disconnects of 2018 have continued this summer. There is the disconnect between market and political behavior. If you read the newspaper headlines, you would think there is government confidence crisis in the US, yet if you plot market activity, any investor would suggest the economy is in great shape. There is also the disconnect between US market activity and global market behavior. 2018 is shaping up to be a great year especially for small cap and growth benchmarks that are both up double digits with August again showing strong performance. Global and emerging markets, both equities and bonds, are sickly.
Dollar Doom Loop – Why A Stronger Dollar Today Means More Financial Trouble Tomorrow
The Financial Times suggested that there is a “Dollar Doom Loop” facing the Fed. Perhaps a little dramatic with the “doom loop” analogy, but not as bad as “death spirals” or “Wile E. Coyote moments”, this story sets the tone for what may be one of the biggest problems not being looked at by most investors. Risk is really volatility or price moves times the exposure to the price change. As the dollar denominated global debt exposure increases, there will be more global risk for any change in rates.
The “3 By 5 Card” On What Investors Need To Know About Yield Curve Flattering
There has been a growing focus on the yield curve and the threat of recession. If you don’t believe me, look at the number of web searches. The interest is high, but all that you need to know can be placed on a 3×5 card. Investor interest in the shape of the yield curve should be high, but that does not mean a recession is around the corner.
“Tell Me Why You Lost Money This Quarter?” – Asking Questions Is A Skill
I ran into a good friend who is a hedge fund analyst in the lobby of my building. “Cannot talk, have to run to call some managers and get their updates. Let’s do lunch next week. See you.” Coming from a quant background, I am always interested how other analysts question managers. I get nervous that I am going to fall in love with the manager’s narrative if he is a good talker, that I am not going to ask the right question to extract their secret value, or that I am going to be turned-off by the poor speaker without truly hearing his message.
Charlie Chaplin, Beauty Pageants, and the Consensus
“Charlie Chaplin once entered a Charlie Chaplin look-alike contest in Monte Carlo and came in third; that’s a story.” – Movie line from “Lucky Number Slevin”
This myth has been out in the public since the before the 1920’s. It has never been verified or reported as being true in any Chaplin biography, yet it continues to hold the attention of many when it is heard. It provides a cautionary warning about how we perceive in competitive group dynamics. Call this a variation of the Keynes beauty pageant story.
Steve Einhorn’s Checklist For A Bear Market – The Five Things You Need To Review
Recent interviews with Steve Einhorn, the long-time hedge fund manager, provides his checklist for when a bull market may turn into a bear market. It is not supposed to be a definitive forecast, but a good simple indication when conditions are ripe for a change. See Boyer Blog and Barron’s .