Presentation by Maz Jadallah, Founder/CEO at AlphaClone, on five common misconceptions about using hedge fund public disclosures to make investment decisions.
1. 5 MYTHS ABOUT
CLONING HEDGE FUNDS
Future of Finance Webinar Series
Presenter: Maz Jadallah, Founder/CEO, AlphaClone
Moderator: Zack Miller, Author, Tradestreaming.com
Date: May 9th @ 4pm EST, 1pm PST
4. clone?
Quant investment
strategy that derives
buy/sell decisions from
public disclosure filings
5. clone?
ↂ rules based
ↂ disclosure based
ↂ automated
ↂ repeatable
6. Myth #1
45 day delay in filing renders disclosures useless
7. 1/3 Average
On average, 1 in 3 clone portfolios
outperformed the S&P500 by 10
percentage points or more
(2000 to 2010)
Source: AlphaClone
8. clone vs. fund
2010 Fund Clone
(net) (gross: long)
Greenlight Capital 12.5% 21.3%
Pershing Square 29.7% 25.9%
Paulson & Co. 24% 19.4%
Third Point 34% 25.8%
Passport 18.3% 25.9%
Perry Capital 14.6% 28.4%
Source: AlphaClone, “Clone vs Fund 2010”
11. 35% % Overlap
20 most popular hedge fund
30% AAPL holdings for Q4 2010*
25% C
20% GOOG
15% JPM
BAC
GENZ
10% GM POT
WFC BIDU
CCI WMB
5%
0% * Based on 178 hedge funds tracked by AlphaClone
0 5 10 15 20 25
Source: AlphaClone
12. % Overlap
3 most popular hedge fund
holdings - Q3/99 to Q3/10
Most Crowded 2nd Most 3rd Most
35%
30%
25%
20%
15%
10%
5%
Q1 00
Q1 01
Q1 02
Q1 03
Q1 04
Q1 05
Q1 06
Q1 07
Q1 08
Q1 09
Q1 10
Source: AlphaClone
14. french/fama study
“Luck vs. Skill In Mutual
Fund Performance”
2% 2% Luck
% of active mutual funds
Skill
% of active mutual funds
expected to outperform if that actually
selected randomly outperformed
Source: Fama/French Forum, “Luck vs. Skill in Mutual Fund Performance”
15. clone universe - top 20 holdings
“Luck vs. Skill”
2% 24% Luck
% of active mutual
Skill
% of clones that outperformed
funds expected to by 2+ standard deviations
outperform if
selected randomly
18. clone vs. fund
2010 Fund Clone
(net) (gross: long)
Greenlight Capital 12.5% 21.3%
Pershing Square 29.7% 25.9%
Paulson & Co. 24% 19.4%
Third Point 34% 25.8%
Passport 18.3% 25.9%
Perry Capital 14.6% 28.4%
Source: AlphaClone, “Clone vs Fund 2010”
19. clone vs. fund (cont.)
2010 Fund Clone
(net) (gross: long)
Millennium Mgmt 13.3% 15.7%
SAC Capital 15% 20.3%
Tudor Capital 7.5% 10.8%
Jana Partners 8.4% 13.7%
Och-Ziff 8.4% 9.2%
Bridgewater 38% 24.9%
Source: AlphaClone, “Clone vs Fund 2010”
20. Myth #5
Hedge funds have very short holding periods
21. 1 Year
Average hedge
fund holding
period
Source: AlphaClone; Goldman Sachs
22. New Buys Rank +3 Mos. +12 Mos.
Appaloosa MS 1 - -
New buy retention XLE 3 - -
Q4 2008 (crisis)
GT 4 4 13
XL 5 6 18
S 7 - -
ODP 13 13 27
OMX 16 15 29
BC 18 8 14
RAD 25 10 21
WLT 31 - -
Retention 6/10 6/10
Source: AlphaClone