Wed, May 24, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Alternative Market Briefing

Other Voices: Tactical alpha and persistence in hedge fund returns

Wednesday, July 02, 2014

amb
Andrew Beer
This article was authored by Andrew Beer, founder of Beachhead Capital Management LLC in New York.

A vexing issue with hedge funds is the lack of persistence of returns. Last year’s winners generally are no more likely to be this year’s. Consequently, while quantitative screening tools help investors to identify strong historical performance, they are of little use in determining which funds will perform better going forward.

Beachhead’s proprietary research demonstrates that, while alpha overall does not persist, "tactical" alpha does. Broadly speaking, hedge fund alpha can be broken down into two sources: position alpha and tactical alpha. Position alpha represents outperformance due to security selection, illiquidity and other factors, such as optionality. Tactical alpha represents medium-term relative value trades across asset classes – such as investing in credit post-crisis or shifting back to developed markets equities in 2012-13.(1) Both position alpha and tactical alpha have a low correlation to equities over time, and hence are valuable diversifiers.

In order to study the persistence of tactical alpha, we examined the performance of 679 funds over the seven-year period from 2007 to 2013. The key conclusions are as follows:

• Managers that generated high tactical alpha (top quintile) in a given year outperformed the overall pool by 246 bps per annum on average in the following year.

......................

To view our full article Click here

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing - Third Point's Loeb surfs on as hedge fund washout continues, George Soros has added to his losing bets against the stock market, Hedge funds, VCs and the CIA are throwing money at ex-Bridgewater data scientists' startup, Hedge funds shed retail amid fears of "apocalypse"[more]

    Third Point's Loeb surfs on as hedge fund washout continues From Reuters/Nasdaq.com: Billionaire investor Daniel Loeb said on Thursday that he is still making money even as the hedge fund industry struggles. Loeb, who oversees the $16 billion hedge fund firm Third Point LLC, sa

  2. Investing - Tudor Jones backs AI hedge funds, Massive hedge fund trades highlight insider buying: GE, Pentair, Tempur Sealy, Apollo Global and more, Hedge funds big wigs are buying consumer and selling tech, here's the stocks[more]

    Tudor Jones backs AI hedge funds From FT.com: Hedge fund magnate Paul Tudor Jones has invested in a brace of artificial-intelligence powered "quantitative" hedge funds, underscoring the increasing acceptance that the industry will need to turn more to technology and away from traditional

  3. Soon hedge fund investors won't bet on a man, they will bet on a machine[more]

    From Forexlive.com: The Wall Street Journal is in the midst of a 17-part series that looks at the rise of quant funds. The AUM and money invested in quant funds still trails traditional asset managers but the gap is closing. What's truly amazing is volume. Quant funds make up 27% of trading vo

  4. J.P. Morgan Asset Management launches ultra-short income ETF[more]

    Komfie Manalo, Opalesque Asia: J.P. Morgan Asset Management, the $1.5tln investment management arm of JPMorgan Chase & Co., has launched the JPMorgan Ultra-Short Income ETF (JPST), an actively managed ETF that seeks to provide current incom

  5. News Briefs - A former hedge fund manager is running a free masters program in financial engineering, Trinity Fund Administration Ltd joining the Mainstream BPO Group, Chelsea Clinton's husband joins Silicon Valley's Social Capital, The quants run Wall Street now[more]

    A former hedge fund manager is running a free masters program in financial engineering A former hedge funder is offering a free masters degree in a field that's integral to Wall Street's future. Igor Tulchinsky, a former managing director at Millennium Partners, a New York-based hedge fu