Tag Archives: active management

Low Dispersion Implies Low Value Added

Understanding a market’s dispersion provides important insights into its internal dynamics and the opportunities and pitfalls that might await both active and passive investors.  Dispersion measures the average difference between the return of an index and the return of each of the index’s components.  In times of high dispersion, the gap between the best performers Read more […]

Voting with Their Feet

Despite superb returns for the equity markets across the developed world, 2013 was a tough year for active managers.  While the average hedge fund recorded fairly solid gains over the year, such performance paled in comparison to the rampant equity markets.  It was also a year that saw historic lows for the potential returns available Read more […]

ETFs poised to overtake Hedge Funds in 2014

If current trends continue, 2014 will herald a significant milestone for the ETF and hedge fund industries, as the total amount of capital invested in the former threatens to overtake the latter. Hedge funds search relentlessly to deliver on a promise of alpha while their privileged investors – supplying notoriously high fees and the tactical Read more […]

Eighty-one years later…

Harbouring year-end reviews and final accounts, the last weeks of December are infused with nostalgia. In this seasonal spirit, I’d like to draw your attention to an under-celebrated piece of work, completed in the year that Katharine Hepburn, Cary Grant and Shirley Temple saw their debuts on the silver screen. In 1932, Fred had not Read more […]

Bond Funds Unbound

Yesterday’s Wall Street Journal offered a profile of fixed income investors who aim to “break [the] chains” by which they are supposedly confined by index benchmarks. As the bond market falters, investors are seeking shelter in funds that aren’t tied to indexes.  These bonds funds are known as “unconstrained,” “go-anywhere,” “absolute return” or “flexible” funds, Read more […]

Coming Soon to a Dictionary Near You

It may have been 30 years ago, in the early days of stock index futures, that the verb “equitize” (and its cognate noun, “equitization“) came into relatively common use.  The term, if Dr. Johnson will forgive me, meant “to provide equity returns without purchasing equity securities.”  Typically this was accomplished by buying S&P 500 futures — if I Read more […]

Stock Picker’s Market?

This morning’s Wall Street Journal cites an adviser who opines that “the current stock market environment favors…active fund managers, who pick individual stocks in an attempt to beat broad market indices.”  This immediately raises the question of how to define a stock picker’s market, and how to determine whether today’s conditions are more auspicious for Read more […]

The Shrinking Supply of Alpha

Recently we attended a conference at which many hedge fund representatives were present. Not surprisingly, there was much discussion of the ability of hedge funds, and by extension active managers generally, to generate alpha. This raises an obvious question: what is the market’s capacity to produce alpha?  Is there a natural limit to investors’ ability Read more […]

Beta, Smart and Dumb

The idea of “smart beta” is gaining increased acceptance, although not without some controversy.  I have to confess that I really dislike the term “smart beta,” and not just because I didn’t invent it.  “Alternative beta” I can live with, or “factor” indices, or “strategy” indices — but “smart” beta leaves me cold. Which is Read more […]

The Fox and the Hedgehog

The ancient Greeks tell the story of the fox and the hedgehog.  The fox, it is said, knows many things, but the hedgehog knows one big thing. Anyone who reads the Wall Street Journal or listens to CNBC will recognize the vulpine nature of much of the financial world.  One key to investment success is Read more […]