Quant Macro Investing

Risk Taking Disciplined

Market Folly Portfolio: December & 2009 Full Year Performance

Here are the 2009 results from our Market Folly custom portfolio created with Alphaclone. The portfolio invests in equities held by specific hedge funds as we seek to replicate their portfolios. The overall goal is to generate alpha and outperformance over the long-term by utilizing their stockpicking skills.

December 2009
MF: +4.0%
S&P 500: +1.9%

Full Year 2009
MF: +13.8%
S&P 500: +26.5%

Total Return (Since 2000)
MF: +885.5%
S&P 500: -8.2%

Annualized Return (Since 2000)
MF: +25.7%
S&P 500: -0.9%

Over the life of the portfolio, we’ve seen Alpha of 22.7, Beta of 0.2, and a 0.2 correlation to the Index. The 2009 performance was disappointing and as we’ve pointed out before, a 50% portfolio hedge severely drags on performance when the market rallies 60+% from the lows in one year. To demonstrate just how much the hedge hurt the portfolio, we’ll pull up the long-only version of the portfolio: It returned 28.6% for 2009, outperforming the S&P by 2%. We created the portfolio with Alphaclone and highly recommend checking it out as you can replicate tons of hedge fund portfolios.

While the hedge put a damper on performance this year, it has also shielded from massive drawdowns in previous bear markets and has helped generate long-term outperformance. Keep in mind that you can run long-only versions or hedged versions, it’s completely up to you. We just prefer to run a hedged book in order to protect from drawdowns.

Those of you who desire to invest directly in our hedge fund replicators, stay tuned. We’re working on a newer, updated portfolio (Market Folly v2.0) that will run on auto-pilot in a brokerage account, so all you have to do is sit back and watch. This portfolio is completely separate of MF clone above, so look for it in 2010! In the mean time, go get your free 14-day trial to Alphaclone to see what stocks our original MF portfolio is currently invested in.

January 3, 2010 - Posted by | Case Study

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