Smart Money Strategies - QWAFAFEW New...
Transcript of Smart Money Strategies - QWAFAFEW New...
Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ™.
Not for distribution to the public. Copyright © 2015 by Standard & Poor’s Financial Services LLC (S&P). All rights reserved.
Ruben Falk
Sr. Director, Investment Management
January 2015
Smart Money Strategies Following Hedge Fund And Institutional Ownership
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Agenda
• Overview of trends and characteristics of hedge fund and traditional
ownership in major U.S. indices
– S&P 1500® Index and Russell 2000® Index
• Performance of hedge fund holdings and related signals
• Relative importance of short vs. long holdings
• Forecasting horizon of the signals
• Interaction between hedge fund and traditional institutional holdings
• Compare and contrast performance within large cap., mid cap. and small cap.
• Return and risk attribution of hedge fund derived portfolios
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Tools And Data
• S&P Capital IQ Ownership
– Covers global institutional ownership back to 2004
– This study focuses on U.S. 13-F filings and associated institutional categorization and aggregation
• Short interest and market data
• S&P and Russell indices including constituent float data
• ClariFI® strategy simulation and portfolio construction platform, including
– Factor back-tester
– Strategy simulation and portfolio construction
– Portfolio attribution
• S&P Capital IQ Fundamental U.S. Risk Model
• Date Range: September 2004 – December 2014
• Transaction costs not explicitly considered
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Related Papers
• Well documented positive relationship between institutional ownership and future equity returns
(e.g. Jiao & Liu, 2008, Yan & Zhang, 2007, Gompers & Metrick, 2001). This research attributed the
outperformance to “independent” institutions (not banks and insurers) and “short-term” institutions
(as defined by fund turnover)
• Cremers & Petajisto (2009) and Jiang et al. (2010) showed that deviations from benchmarks (“active
share”) predicted fund performance and returns on individual stocks. Jiang & Sun (2011) went on to
find that high dispersion in mutual fund active share resulted in additional outperformance
• Increase in ownership breadth among institutional investors has also been found to be associated
with subsequent outperformance (e.g. Sias et al., 2001, Chen et al., 2002)
• Blume & Keim (2012) found that institutional breadth explains the cross section of liquidity and that
the power of the number of institutional owners in explaining illiquidity is significantly stronger in
the second part of their sample period, 1996-2010, than the first part, 1982-1995
• Dimitrov & Gatchev (2010) found that turnover of ownership between institutions and individuals
(but not amongst institutions) is negatively related to subsequent stock returns
• Agarwal et al. (2011) found that “confidential holdings” of institutional investors exhibit superior
performance for up to 12 months during the confidentiality period
Please see reference addendum page at the end of this presentation.
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Institutional Background: Form 13-F
• Form 13F: Quarterly holdings disclosure by 13F institutions (>$100MM assets)
• Timeline of original and confidential filings
– Filing date of original 13-F filing must be within 45 days of the calendar quarter end
– An exception to the 13(f) rule allows for confidential treatment of certain holdings through amendments
to the Form 13F. The deadline for amendments is generally one year after the original 45-day deadline
• The ownership data is stored and aggregated with reference to the portfolio (or holding)
date. In this study, we then lag the data by 45 days to two months
• Fortunately the look-ahead bias is likely to be minimal:
2014 2013 2010-14
Total 13-F filings (approx. 22% Hedge Funds) 15,724 14,784 71,862
– Restatements (errors, no new holdings) 355 707 3882
– Amendments (previously confidential, approx. 50% HF’s) 157 124 890
Amendments as % of total 1.0% 0.8% 1.2%
Source: S&P Capital IQ as of November. 30, 2014. Agarwal, Jiang et al., October 2012.
Please note: 13f is a filing for discretionary securities holdings >100 mm and non-discretionary securities are excluded from reporting.
6 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
S&P 1500 Ownership At A Glance
Note: Institutional Ownership excludes hedge fund holdings that are >5% of the shares outstanding of a constituent company. Traditional Institutions include Banks &
Insurance, Pension Funds & Endowments, Traditional Investment Managers and certain smaller categories such as Family Offices but excludes Hedge Funds.
Souurce: S&P Capital IQ, ClariFI information as of Sep. 30, 2014.
0
5
10
15
20
CIQ Ownership9/30/2014
US
D T
rillio
n
S&P 1500 Aggregate Ownership
Retail & Other
Individuals/Insiders
Hedge Funds
Trad. Institutions
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
S&P 1500 Institutional Ownership (main components)
Banks & Insurance
Pension Funds &Endowments
Hedge Funds (< 5%)
Trad. InvestmentManagers
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Another Take On Aggregate Ownership
Note: Traditional Institutions include Banks & Insurance, Pension Funds & Endowments, Traditional Investment Managers and certain smaller categories such as Family
Offices but excludes Hedge Funds.
Source: S&P Capital IQ, ClariFI information as of Sep. 30, 2014.
$-
$5.00
$10.00
$15.00
$20.00
US
D T
rillio
n
S&P 1500 Aggregate Ownership
Strategic Holders(implied)
Float
Public & Other
Individuals/Insiders
Hedge Funds
Trad. Institutions
$-
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
Long Short Interest Net
US
D T
rillio
n
S&P 1500 Aggregate Hedge Fund Ownership
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Example: Herbalife Ltd
• Hedge Funds have a net short
position
• Traditional institutional ownership
is overstated compared to shares
outstanding
• As we will see later, the interaction
between hedge fund and traditional
institutional ownership appears to
contain useful information
Note: Traditional Institutions include Banks & Insurance, Pension Funds & Endowments, Traditional
Investment Managers and certain smaller categories such as Family Offices but excludes Hedge Funds
Source: S&P Capital IQ, ClariFI information as of Sep. 30, 2014. For illustrative purposes only.
0
25,000
50,000
75,000
100,000
125,000
CIQOwnership
ShortInterest
Shares Out
Sh
are
s (
000’s
)
Herbalife Ownership
Public & Other
Individuals/Insiders
Hedge Funds
Trad. Institutions
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Trends In Hedge Fund Ownership
*Numbers refer to latest aggregate hedge fund holdings in the respective indices.
**Hedge fund holdings exclude holdings that are >5% of the shares outstanding of a constituent company.
Source: S&P Capital IQ, ClariFI information as of Sep. 30, 2014.
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Aggregate Hedge Fund Ownership** / Total Index Float – S&P 1500
Long Side
Net
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
S&P 500 S&P 400Mid Cap.
S&P 600Small Cap.
Russell 2000
Aggregate Long Hedge Fund Ownership / Total Index Float
$0.59TN*
$0.06TN*
$0.21TN*
$0.13TN*
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110 72 51 32 22
77 74 59 45 35
55 67 65 55 46
34 52 65 69 65
11 23 49 86 120
Hedge Fund Holdings Correlated With Idiosyncratic Risk
111 65 56 40 23
81 71 64 52 27
54 64 65 62 48
32 53 59 69 78
16 41 49 70 117
114 93 67 49 36
94 91 75 62 43
76 81 81 71 60
54 64 79 85 87
27 38 65 99 140
128 85 66 52 45
90 80 73 71 66
73 75 75 78 82
56 71 78 84 95
35 69 90 96 92
Russell 2000 HF Long Russell 2000 HF Short
S&P 1500 HF Long S&P 1500 HF Short
Stocks with high
hedge fund
holdings*
Stocks with low
hedge fund
holdings*
Stocks with high
hedge fund
holdings*
Stocks with low
hedge fund
holdings*
Stocks with
high stock
specific risk
Stocks with
low stock
specific risk
Stocks with
high stock
specific risk
Stocks with
low stock
specific risk
= Avg.
Count x
Average Number Of Stocks By Quintile 2004 – 2014
*Defined as aggregate hedge fund holdings divided by float.
Note: Hedge fund holdings exclude holdings that are >5% of the shares outstanding of a constituent company.
Source: S&P Capital IQ, ClariFI information Sep. 30, 2004 - Sep. 30, 2014.
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“Naïve Hedge Fund Follower” Strategy
50
75
100
125
150
175
200
225
250
275
300
Ind
ex
S&P 1500
No Lag
Lagged by 2 Months
Benchmark
Annualized Return
S&P 1500 Russell 2000
10.5% 7.8%
9.7% 6.7%
8.7% 9.0%
• The naïve strategy buys a portfolio that has the same weights as the aggregate long portfolio of all
hedge funds – As of the fiscal period end date of the hedge fund 13-F filings (no lag)
– 15 days after the latest allowed 13-F filing dates (2 months lag)
– Quarterly rebalancing
Note: Past performance is not an indication of future results. Indexes are unmanaged, statistical composites and it is not possible to invest directly in an index. These results
are inherently limited because they do not represent the results of actual trading and were constructed with the benefit of hindsight. The returns shown do not reflect payment
of any sales charges or fees an investor would pay to purchase the securities they represent. The imposition of these fees and charges would cause actual and back tested
performance to be lower than the performance shown.
Source: S&P Capital IQ, ClariFI information Sep. 30, 2004 - Dec. 31, 2014. For illustrative purposes only.
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“Hedge Fund Share” Strategy
• This strategy selects the top 20% of stocks (cap weighted) according to:
Aggregate Long and Net HF Holdings Divided by the Float Quarterly rebalancing 15 days after the latest allowed 13-F filing date (2 months lag)
0
50
100
150
200
250
300
350
400
Ind
ex
S&P 1500
HF Long Side / Float
HF Net / Float
Benchmark
Annualized Return
S&P 1500 Russell 2000
12.9% 12.1%
11.2% 14.0%
8.7% 9.0%
• For S&P 1500 the value of the signal is only in the long
hedge fund holding information
• For Russell 2000 there is value in both the long and
short hedge fund holding information, even for a long
only strategy
Note: Past performance is not an indication of future results. Indexes are unmanaged, statistical composites and it is not possible to invest directly in an index. These results
are inherently limited because they do not represent the results of actual trading and were constructed with the benefit of hindsight. The returns shown do not reflect payment
of any sales charges or fees an investor would pay to purchase the securities they represent. The imposition of these fees and charges would cause actual and back tested
performance to be lower than the performance shown.
Source: S&P Capital IQ, ClariFI information Sep. 30, 2004 - Dec. 31, 2014. For illustrative purposes only.
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Hedge Fund Share: Signal Decay
Aggregate Net Hedge Fund Holdings Divided by the Float
Note: Past performance is not an indication of future results.
Source: S&P Capital IQ, ClariFI information Sep. 30, 2004 - Dec. 31, 2014. For illustrative purposes only.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
-2 -1 1 2 3 4 5 6 7 8 9 10 11
Month
IC T-Statistic
0.000
0.005
0.010
0.015
0.020
0.025
-2 -1 1 2 3 4 5 6 7 8 9 10 11
Month
Information Coefficient (IC)
S&P 1500
Russell2000
95%
confidence
level
13-F Deadline
Sweet-spot
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Importance of Long vs. Short Hedge Fund Holdings
0%
2%
4%
6%
8%
10%
12%
14%
16%
An
nu
alized
Retu
rn
S&P 1500 HF Ownership/Float
Net
Long
Short
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Russell 2000 HF Ownership/Float
Stocks with
high levels
of long HF
holdings and
small short
positions
Stocks with
low levels of
long HF
holdings and
large short
positions
Ditto Ditto
Note: Hedge fund holdings exclude holdings that are >5% of the shares outstanding of a constituent company. Returns are capitalization weighted and measured 3 months
forward from the 45-day 13-F deadline each quarter. Past performance is not an indication of future results. Indexes are unmanaged, statistical composites and it is not
possible to invest directly in an index. These results are inherently limited because they do not represent the results of actual trading and were constructed with the benefit
of hindsight. The returns shown do not reflect payment of any sales charges or fees an investor would pay to purchase the securities they represent. The imposition of
these fees and charges would cause actual and back tested performance to be lower than the performance shown.
Source: S&P Capital IQ, ClariFI information Sep. 30, 2004 - Dec. 31, 2014. For illustrative purposes only.
15 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Trends In Traditional Institutional Ownership
Note: Note: Traditional Institutions include Banks & Insurance, Pension Funds & Endowments, Traditional Investment Managers and certain smaller categories such as Family Offices
but excludes Hedge Funds. Institutional ownership time series excludes hedge fund holdings that are >5% of the shares outstanding of a constituent company.
Source: S&P Capital IQ, ClariFI information as of Sep. 30, 2014.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Aggregate Inst. Ownership/ Total Index Float – S&P 1500
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
S&P 500 S&P 400Mid Cap.
S&P 600Small Cap.
Russell 2000
Aggregate Trad. Inst. Ownership/ Total Index Float
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Implications Of Traditional Institutional Ownership
0%
2%
4%
6%
8%
10%
12%
14%
An
nu
alized
Retu
rn
Traditional Institutional Ownership/Float
S&P 1500
Russell 2000
Note: Traditional Institutions include Banks & Insurance, Pension Funds & Endowments, Traditional Investment Managers and certain smaller categories such as Family Offices but excludes Hedge
Funds. Returns are capitalization weighted and measured 3 months forward from the 45-day 13-F deadline each quarter. Past performance is not an indication of future results.
Source: S&P Capital IQ, ClariFI information Sep. 30, 2004 - Dec. 31, 2014. For illustrative purposes only.
Stocks with high traditional institutional ownership
Stocks with low traditional institutional ownership
• In line with previous research,
low levels of traditional
institutional ownership coincide
with under performance
• But traditional institutional
ownership provides a much
weaker signal than hedge fund
ownership
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Intersection Of Hedge Fund And Traditional Institutional Ownership
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
An
nu
alized
Retu
rn
Top 20% of Hedge Fund Ownership Share*
S&P 1500
Russell 2000
Stocks with high
traditional
institutional
ownership
Stocks with low
traditional
institutional
ownership
• In the Russell 2000, the returns of
stocks with high levels of hedge
fund ownership were reinforced by
higher levels of traditional
institutional ownership
• However in the S&P 1500, the best
performing stocks had high levels
of hedge fund ownership AND low
levels of traditional institutional
ownership
• The top-bottom spreads are
statistically significant at the 98%
level for both S&P 1500 and
Russell 2000
*Defined as hedge fund holdings divided by float. Hedge fund holdings are long only for S&P 1500 and net for Russell 2000
Note: Traditional Institutions include Banks & Insurance, Pension Funds & Endowments, Traditional Investment Managers and certain smaller categories such as Family Offices but excludes Hedge
Funds. Hedge fund holdings exclude holdings that are >5% of the shares outstanding of a constituent company. Returns are capitalization weighted and measured 3 months forward from the 45-day
13-F deadline each quarter. Past performance is not an indication of future results.
Source: S&P Capital IQ, ClariFI information Sep. 30, 2004 - Dec. 31, 2014. For illustrative purposes only.
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“Intersection Strategy” For The S&P 1500
• The final strategy selects the intersection of
– Aggregate Long HF Holdings/Float (top 20% or 300 stocks), and
– Aggregate Traditional Institutional Holdings/Float (bottom 20% or 300 stocks)
• Two months lag, quarterly rebalancing, cap. weighted (holding constraint)
Note: Past performance is not an indication of future results. Indexes are unmanaged, statistical composites and it is not possible to invest directly in an index. These
results are inherently limited because they do not represent the results of actual trading and were constructed with the benefit of hindsight. The returns shown do not
reflect payment of any sales charges or fees an investor would pay to purchase the securities they represent. The imposition of these fees and charges would cause actual
and back tested performance to be lower than the performance shown.
Source: S&P Capital IQ, ClariFI information Sep. 30, 2004 - Dec. 31, 2014. For illustrative purposes only.
Annualized Return
15.7%
13.7%
8.7%
0
50
100
150
200
250
300
350
400
450
500
Ind
ex
Strategy (unconstrained)
Strategy (max 5%)
S&P 1500
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Large Cap. Intersection Strategy Event Study
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
65%
66%
67%
68%
69%
70%
71%
72%
73%
74%
75%
-12 -9 -6 -3 0 3 6 9 12
Month of Intersection Portfolio Formation
Ownership as % of Float – S&P 500 Intersection Strategy
TraditionalInstitutions(LHS)
HedgeFunds(RHS)
Note: Traditional Institutions include Banks & Insurance, Pension Funds & Endowments, Traditional Investment Managers and certain smaller categories such as Family Offices but excludes Hedge
Funds. Hedge fund holdings exclude holdings that are >5% of the shares outstanding of a constituent company. The “intersection strategy” in the S&P 500 is the top 100 stocks ranked by long hedge
fund holdings divided by float intersected with the bottom 100 stocks ranked by traditional institutional ownership divided by float and rebalanced quarterly with a 2-month lag.
Source: S&P Capital IQ, ClariFI information Sep. 30, 2004 - Feb. 28, 2014. For illustrative purposes only.
• It appears that for stocks with high hedge fund ownership share and low traditional
ownership share, hedge funds have been able to anticipate the rotation of traditional
institutions back into these stocks
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“Intersection Strategy” For The Russell 2000
• In this case, the final strategy selects the intersection of
– Aggregate Net HF Holdings/Float (top 20% or 400 stocks), and
– Aggregate Traditional Institutional Holdings net of Shorts/Float (top 20% or 400 stocks)
• Two months lag, quarterly rebalancing, cap. weighted (holding constraint)
Note: Past performance is not an indication of future results. Indexes are unmanaged, statistical composites and it is not possible to invest directly in an index. These
results are inherently limited because they do not represent the results of actual trading and were constructed with the benefit of hindsight. The returns shown do not
reflect payment of any sales charges or fees an investor would pay to purchase the securities they represent. The imposition of these fees and charges would cause actual
and back tested performance to be lower than the performance shown.
Source: S&P Capital IQ, ClariFI information Sep. 30, 2004 - Dec. 31, 2014. For illustrative purposes only.
0
100
200
300
400
500
600
700
800
900
Ind
ex
Strategy (unconstrained)
Strategy (max 5%)
Russell 2000
Annualized Return
18.3%
22.1%
9.0%
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Risk And Return Attribution
Unconstrained “Intersection Strategies”
Note: Past performance is not an indication of future results.
Source: S&P Capital IQ, ClariFI information Sep. 30, 2004 - Dec. 31, 2014. For illustrative purposes only.
Sep. 30, 2004
To
Dec. 31, 2014
S&P 1500 Russell 2000
Active
Exposure
Contribution
to Active
Return
Contribution
to Tracking
Error
Percent of
Tracking
Error
Active
Exposure
Contribution
to Active
Return
Contribution
to Tracking
Error
Percent of
Tracking
Error
Factor -0.7% 7.8% 53.7% 0.6% 4.5% 30.2%
Market 0.13 1.8% 3.8% 11.2% -0.08 -0.2% 1.7% 6.0%
Style -2.9% 5.5% 24.3% 0.0% 2.8% 10.9%
Valuation 0.17 -0.4% 1.4% 1.1% -0.09 0.1% 0.5% 0.7%
Size 0.07 -0.6% -0.9% 0.1% 0.14 -0.2% 1.5% 4.4%
Analyst Expectation 0.05 -1.0% 2.2% 1.8% 0.14 -0.3% 1.2% 1.6%
Historical Growth 0.54 -1.0% -0.8% 1.4% 0.11 -0.9% 1.5% 1.6%
Capital Efficiency -0.71 -0.4% 2.6% 5.3% -0.12 0.7% 0.8% 0.9%
Price Momentum 0.39 0.1% -2.1% 1.8% -0.07 0.0% 0.6% 0.9%
Earnings Quality -0.16 -1.2% 2.5% 2.0% -0.02 0.0% 0.6% 0.6%
Volatility 0.50 1.4% 4.0% 10.8% 0.05 0.7% 0.6% 0.3%
Industry 0.04 0.3% 4.0% 18.3% -0.07 0.8% 3.1% 13.3%
Stock Specific 7.8% 6.2% 46.3% 8.7% 5.9% 69.8%
Grand Total 7.0% 9.9% 100.0% 9.3% 7.4% 100.0%
22 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Short Signals
• The best shorting signal during the test period was
– Aggregate Long or Net HF Holdings/Float, combined with
– One quarter % change in institutional breadth (number of institutional holders)
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%A
nn
ualized
Retu
rn
20% of Stocks with Most Negative* Change in Institutional Breadth
S&P 1500
Russell 2000
Stocks with
high levels of
long or net HF
holdings**
Stocks with
low levels of
long or net HF
holdings** *Or least positive.
**Defined as hedge fund holdings divided by float. Hedge fund holdings are long only for S&P 1500 and net for Russell 2000. Note: Hedge fund holdings exclude holdings that are >5% of the shares
outstanding of a constituent company . Returns are capitalization weighted and measured 3 months forward from the 45-day 13-F deadline each quarter. Past performance is not an indication of future results.
Indexes are unmanaged, statistical composites and it is not possible to invest directly in an index. These results are inherently limited because they do not represent the results of actual trading and were
constructed with the benefit of hindsight. The returns shown do not reflect payment of any sales charges or fees an investor would pay to purchase the securities they represent. The imposition of these fees
and charges would cause actual and back tested performance to be lower than the performance shown.
Source: S&P Capital IQ, ClariFI information Sep. 30, 2004 - Dec. 31, 2014. For illustrative purposes only.
23 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Performance Summary
Compound
Ann. Return
Ann.
Risk
Compound
Return/Risk Ratio
Ann. Tracking
Error
Ann. One-Way
T/O
S&P 1500
Benchmark 8.7% 20.4% 0.42 0 ~0
HF Share Strategy
(Long HF Holdings) 12.9% 22.2% 0.58 6.3% 154%
Intersection Strategy
(Unconstrained) 15.7% 21.8% 0.72 8.7% 217%
Intersection Strategy
(5% Holding Constraint) 13.7% 22.8% 0.60 9.1% 218%
Russell 2000
Benchmark 9.0% 26.1% 0.34 0 ~0
HF Share Strategy
(Net HF Holdings) 14.0% 27.0% 0.52 5.3% 193%
Intersection Strategy
(Unconstrained) 18.3% 26.9% 0.68 7.7% 250%
Intersection Strategy
(5% Holding Constraint) 22.1% 27.8% 0.80 12.1% 276%
Note: Past performance is not an indication of future results. Returns are capitalization weighted. Indexes are unmanaged, statistical composites and it is not possible to invest
directly in an index. These results are inherently limited because they do not represent the results of actual trading and were constructed with the benefit of hindsight. The
returns shown do not reflect payment of any sales charges or fees an investor would pay to purchase the securities they represent. The imposition of these fees and charges
would cause actual and back tested performance to be lower than the performance shown.
Source: S&P Capital IQ, ClariFI information Sep. 30, 2004 - Dec. 31, 2014. For illustrative purposes only.
24 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Performance Summary: Other Large Cap. Indices
Compound
Ann. Return
Ann.
Risk
Compound
Return/Risk Ratio
Ann. Tracking
Error
Ann. One-Way
T/O
S&P 500
Benchmark 8.4% 20.2% 0.42 0 ~0
HF Share Strategy
(Long HF Holdings) 12.7% 22.6% 0.56 6.3% 146%
Intersection Strategy
(Unconstrained) 16.0% 23.4% 0.69 10.1% 222%
Intersection Strategy
(Equal Weight) 16.9% 25.8% 0.65 11.4% 209%
Russell 1000
Benchmark 8.7% 20.1% 0.42 0 ~0
HF Share Strategy
(Long HF Holdings) 12.3% 22.7% 0.54 6.6% 162%
Intersection Strategy
(Unconstrained) 16.9% 21.6% 0.78 8.8% 228%
Intersection Strategy
(5% Holding Constraint) 14.4% 23.3% 0.62 9.6% 241%
Note: Past performance is not an indication of future results. Returns are capitalization weighted except where noted. Indexes are unmanaged, statistical composites and it is
not possible to invest directly in an index. These results are inherently limited because they do not represent the results of actual trading and were constructed with the benefit
of hindsight. The returns shown do not reflect payment of any sales charges or fees an investor would pay to purchase the securities they represent. The imposition of these
fees and charges would cause actual and back tested performance to be lower than the performance shown.
Source: S&P Capital IQ, ClariFI information Sep. 30, 2004 - Dec. 31, 2014. For illustrative purposes only.
25 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Takeaways
• Hedge fund conviction as measured by aggregate hedge fund ownership share as a
percentage of float appears to have provided a useful stock picking signal,
particularly since 2009
• The forecasting horizon of the signal has been around 3 months – around the same
as the frequency of 13-F reporting
• Short interest is an important component of the signal for small cap but less for
large cap
• In general, low levels of traditional institutional ownership have been associated
with underperformance
• However in large cap’s, particularly the S&P 500, portfolios with low traditional
institutional share combined with high hedge fund share have outperformed
– Relatively high retail ownership in the S&P 500 may be a factor. Are hedge funds able to
successfully anticipate rotation between retail and institutional investors?
• Hedge fund share appears to have provided the strongest signals in the S&P 500
and the bottom 1,500 stocks of the Russell 2000 on a cap weighted basis
• Decrease in institutional breadth combined with low hedge fund share may be a
useful short signal
26 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Q&A
Ruben Falk
Sr. Director, Investment Management
27 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Appendix
28 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
Reference Addendum
• Blume and Keim (2012)
Institutional Investors and Stock Market Liquidity:
Trends and Relationships
• Chen, Hong and Stein (2001)
Breadth of ownership and stock returns
Journal of Financial Economics, 66 (2002) 171–205
• Jiang and Sun (2011)
Dispersion in Beliefs among Active Mutual Funds and the
Cross-Section of Stock Returns
Journal of Financial Economics, Volume 114, Issue 2, November 2014,
Pages 341–365
• Dimitrov and Gatchev (2008)
Do Institutions Pay to Play? Turnover of Institutional Ownership and Stock
Returns *
• Jiao and Liu (2008)
Independent Institutional Investors and Equity Returns
• Yan (Sterling) and Zhang (2009)
Institutional Investors and Equity Returns:
Are Short-term Institutions Better Informed?
The Review of Financial Studies, (2009) 22 (2): 893-924
• Gompers and Metrick (2001)
Institutional Investors and Equity Prices*
The Quarterly Journal of Economics 116(1), February 2001, 229-259
• Sias, Starks and Titman (2001)
The Price Impact of Institutional Trading
• Cremers and Petajisto (2009)
How Active Is Your Fund Manager? A New Measure That Predicts
Performance*
AFA 2007 Chicago Meetings Paper; EFA 2007 Ljubljana Meetings Paper;
Yale ICF Working Paper No. 06-14
• Jiang, Verbeek and Wang (2013)
Information Content when Mutual Funds Deviate from Benchmarks*
AFA 2012 Chicago Meetings Paper
• Agarwal, Jiang, Tang and Yang (2013)
Uncovering Hedge Fund Skill from the Portfolio Holdings They Hide*
The Journal of Finance, Volume 68, Issue 2, pages 739–783, April 2013
29 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.
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