Entries by Will Simmons, CFA

Most Hedge Fund Strategies Are Redundant

Hedge fund strategies are not as unique as investors believe. We examine 18 strategy indexes and find that three factors capture more than 87% of the variation in returns. Most strategies are redundant, which has several implications for portfolio construction. Investors should focus on finding quality funds independent of strategy. Diversification is powerful. Most investors …\n

Trading off Return and Correlation

It’s easy to evaluate a trade-off between risk and return, but much more challenging to understand a trade-off between correlation and return, particularly as the number of securities in a portfolio increases. Investors often underestimate the significance correlation plays in portfolio performance, and underweight lower return, low correlation assets as a result. Correlation can be, …\n

The Top 10 Factors Driving Hedge Fund Returns

Hedge funds have the ability to exploit pricing inefficiencies across a very diverse set of asset classes and securities using a variety of techniques. It therefore shouldn’t come as a surprise that their returns draw from a greater number of risk factors than traditional investments. In this post, we look at the 10 most significant …\n

Where Hedge Funds Won and Lost in 2015

2015 has come to a close and most in the financial community are probably happy to see it end. Despite a number of fear-inducing headlines that sent the VIX soaring to its highest level in years, US equity markets remained range bound. The year’s highest close on the S&P 500 represented only a modest 14.1% …\n

Contrary to Popular Opinion, Bridgewater Did Not Blow Up the Market

In the past several weeks, risk parity funds such as Bridgewater’s All Weather have attracted substantial criticism. The attacks have clustered around two primary notions: firstly, that risk parity is a failure because it did not protect investors during August’s drawdowns and secondly, that risk parity may have caused or at least amplified the market’s …\n

Why Do Investors Still Favor Long/Short Equity?

In its recent Investor Outlook, Preqin included the following chart describing investor preferences in the hedge fund space. It shows that more than half of the allocators interviewed intend to seek out new or additional long/short equity managers in the next 12 months. Long/short equity is, by far, the most desired strategy. But why? As …\n

Relax, Hedge Funds Do Just as Well as You Thought

A new paper argues that annualized hedge fund returns in the Lipper TASS database are 50% lower after adjusting for backfill and survivorship bias. We note that hedge fund index providers already adjust for these biases, and find that the long-term rate of return obtained using their indexes is a better estimate of actual realized …\n

Understanding Eqira’s Factor Attribution Reports

At Eqira we believe that factor analysis is one of the best tools for evaluating financial time series. The rationale is simple: if we can reasonably approximate an asset’s underlying factor structure, we can better understand that asset’s past and future behavior and open the door for an extraordinary number of advanced analyses. Some of …\n

Understanding Eqira’s Factor-Based Projections

Abstract: It is very difficult to get reliable intra-month performance indications for alternatives such as hedge funds. Actual performance is typically reported monthly, often with considerable lag. The few daily indexes that do exist often exhibit enormous tracking error. This article examines the Eqira Factor-Based Projections and illustrates how they address these issues by providing …\n

Introducing Eqira

It’s become customary in computer science to begin instruction in any new language with a simple program, known as “Hello, World!”, which outputs its title when executed. The rationale is simple: the program is basic enough for someone without experience to understand, particularly with the guidance of an instructor. It can be used as the …\n