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Investing

Best Ideas Hedge FOF

Photo of Douglas A. McIntyre
By Douglas A. McIntyre Published
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From World Beta


I have examined a few different ways of cobbling together portfolios from hedge fund 13Fs:

1. Consensus – Putting together a portfolio of names that are owned by multiple funds.
2. Replication – Replicating a single fund with its top 10 holdings.
3. Conviction – The Morgan Stanley study that bought companies with a high %age of their shares owned by a small number of hedge funds.

Granted, there is *very likely* survivorship bias due to the universe of funds currently in existence. How much this biases the results it is hard to gauge. Possibly the returns will settle closer to the HFR L/S category average, but I think the best value managers will achieve returns that outpace that.

One of the problems I had with my Consensus portfolio was the idea of herding. Just because a number of funds own a stock does not necessarily mean it is their best idea. . .

I went back and examined what a "Best Ideas" Portfolio would look like. In this case I simply took the top 2 holdings from 9 value hedge funds, and updated it quarterly. The results are below.

They are highly correlated with the Consensus Portfolio ( ~ .85), but less volatile, and with slightly better returns. This strategy makes more intuitive sense to me than the Consensus.

A current portfolio we will track on Stockpickr could include these stocks from the following funds:

Other funds that readers submitted that could be included are:

Gotham
Glenview
Alson
Pabrai
Perry
Lone Pine
Tontine
Relational
Defiance
Appaloosa
Thames
Witmer
Libra
Feinberg
MLF

Posted by Mebane Faber

http://worldbeta.blogspot.com/

Photo of Douglas A. McIntyre
About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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