Alternative Beta Strategies: a New Paradigm to the Hedge Fund Industry

Total Page:16

File Type:pdf, Size:1020Kb

Alternative Beta Strategies: a New Paradigm to the Hedge Fund Industry Hedge Fund Return Sources Alternative Beta Strategies: A new paradigm to the hedge fund industry Dr. Lars Jaeger, Partner Partners Group Table of contents 2 I Alpha versus Beta in hedge fund returns II Implications: Why hedge fund replication is interesting III The two essential approaches IV Core – Satellite portfolios: A new paradigm to hedge fund investing Alpha versus beta in hedge fund returns The hedge fund return puzzle 3 There is a widely held belief that hedge funds earn their returns through the identification of market “inefficiencies” and by superior investment selection, i.e. by producing “alpha”. However … since hedge funds generally trade in the most efficient markets: Is it really plausible that remaining inefficiencies in these markets can provide a steady stream of alpha to the USD 1,500+ billion hedge fund industry? Are hedge fund managers really so much smarter than traditional managers? ThereThere mustmust bebe another,another, hiddenhidden sourcesource ofof returnsreturns drivingdriving aa significantsignificant partpart ofof thethe performancperformancee ofof manymany hedgehedge fundfund strategiesstrategies 1 Alpha versus beta in hedge fund returns Discovering the “atomic structure” of hedge fund returns 4 The model of an atom in 1895 The model of an atom according to modern quantum physics β β α α ε α α α β1 α α β2 β α ε β3 β ε β 4 α α β5 β α α 7 α ε β6 ε α α α The model of returns in a hedge The emerging model of hedge fund portfolio until today fund return sources Alpha versus beta in hedge fund returns Understanding Hedge Fund Returns: A Simple Model 5 Traditional mutual fund Hedge fund Superior: “Alpha” - Security selection α -Market Timing Currency Risk Premium Event Risk Premium Convergence Risk Premium Commodity Risk Premium Alt- Complexity Risk Premium β Market risk Proclaimed Short Vega Risk Premium Hedge Leverage premium alpha Liquidity Risk Premium Term Curve Risk Premium Small Cap Risk Premium β Value Stocks Risk Premium Leveraged proclaimed alpha Credit Risk Premium EmMa Risk Premium Equity Risk Premium Market- One of many investors’ most frequent mistakes is not looking deeper into a hedge fund’s proclaimed alpha. Alpha versus beta in hedge fund returns Traditional Beta vs. Hedge Fund Beta (Alternative Beta) 6 Traditional Beta Hedge Fund Beta (Alternative Beta) Exposure to: Exposure to: Broad equity market Style factors, such as small cap vs. Interest rates (duration) large cap, value vs. growth, momentum (Long/Short Equity, Equity Market Credit risk Neutral) Emerging markets Event risk (Merger Arbitrage) Volatility (Convertible Arbitrage, Volatility Arbitrage) Risks of commercial hedgers in futures markets (Managed Futures) Liquidity risk (Distressed Securities, Fixed Income Arbitrage, Reg D) Spread risk, e.g. carry trades (Global Macro) Exposure to Hedge Fund Beta requires special investment techniques including short selling, leverage, and the use of derivatives. Thus, hedge funds have exclusive access to these Alternative Betas. 2 Alpha versus beta in hedge fund returns Some words of caution : Distinguish between alpha and beta 7 Distinguish „alphas” and „betas” in hedge funds Alpha and beta do not come separately. Often hedge funds come with “phantom alphas” (i.e. beta is sold as alpha) Phantom alphas are not persistent Phantom alphas can even be related to unwanted and uncontrolled systematic risks Unwanted and uncontrolled systematic risks often lead to DI-WORSE-IFICATION History and common sense tells us: The real risk from hedge funds comes from: unwanted and unknown leveraged systematic risk uncontrolled manager related risk (style drifts, faulty operations, fraud, etc.) Table of contents 8 I Alpha versus Beta in hedge fund returns II Implications: Why hedge fund replication is interesting III The two essential approaches IV Core – Satellite portfolios: A new paradigm to hedge fund investing Why hedge fund replication is interesting Hedge Fund Alpha Is Diminishing … 9 The development of alpha (excess return over a rolling linear factor regression) over a 60 month time window for various strategies : 1.0% Equity Hedge Event Driven Merger Arbitrage Convertible Arbitrage 0.8% 0.6% 0.4% 0.2% Monthly alphain percent 0.0% 5 5 02 02 04 04 07 07 l 01 t 01 02 t l 03 04 t l 05 06 r 06 l 06 u k an k u u an u pr Jan 01Apr 01 J O J Apr 02 Jul O Jan 03Apr 03 J Okt 03Jan Apr 04 Jul Ok Jan 0 Apr 0 J Okt 05J Ap J Okt 06Jan A Jul 07Okt 07 -0.2% HFRI Index Replicating Factors EH S&P 500 Russell 2000 BXM Buywrite Index AR(1) AR (1) = Autoregressive factor for tracking of stale pricing ED S&P 500 Russell 2000 CS High Yield Index AR(1) MERFX = Merger fund index MA SMB Russell 3000 MERFX BXM Buywrite Index AR(1) SMB = Small minus Big (Small Cap Factor) Citigroup CA S&P 500 CS High Yield Index AR(1) Convertible Index Data source: HFR, Bloomberg. Calculation: Partners Group 3 Hedge fund return sources Hedge fund returns: Yesterday, today and tomorrow 10 Average Hedge Fund Return Components over Time 14% 12% 10% α (15%) (48%) α 8% 6% Expected return (42%) (35%) (60%) 4% Alt-β α Alt-β 2% Alt-β (35%) M-β (25%) M-β (10%) M-β (30%) 0% 2008-2012 1995-1999 2000 - 2007 βeta = is a risk premia and a compensation for a risk taken αlpha = is the result of a zero-sum game (one’s profit is another’s loss) Why hedge fund replication is interesting Hedge funds in a global portfolio 11 The traditional “Balanced Portfolio” does not include other risk premia that have favorable diversification qualities and generate attractive alternative returns. Commodity Roll Yield risk hedging risk Equity risk Volatility risk Convergence risk Complexity /efficiency risk Momentum risk Traditional investors benefit only from a few risk premia (blue) Value risk available in the market and miss multiple other sources of return! Event risk FX Carry risk Term risk Duration (Bond) Credit risk risk Convergence risk EmMa risk Investors can access other uncorrelated alternative “risk premia” and thus return sources through hedge funds. TheThe realreal benefitsbenefits fromfrom hedgehedge fundsfunds dodo notnot necessarilynecessarily comecome fromfrom accessingaccessing today’stoday’s starstar trader,trader, butbut fromfrom thethe persistepersistentnt benefitsbenefits ofof alternativealternative riskrisk premiapremia Why hedge fund replication is interesting The Issue of Hedge Fund Fees 12 Pay a lot (and even more in the future) for true alpha skill unavailable anywhere else Pay less for systematic exposure to alternative betas, but more than regular stock market beta as extra skills are required Don‘t pay hedge fund fees for Hedge fund fees traditional beta exposure (even when a few short positions are thrown in for credibility) Hedge fund fee structure does not discriminate between skill based performance (alpha) and risk factor compensation (beta) 4 Why hedge fund replication is interesting Fees I: How about saving the manager fee layer? 13 FoF PG ABS Hedge Fund Return Gross of Fees 9% - 18% 9% - 18% Management Fee HF (2%) / PG ABS (1.25%) 2.0% 1.25% Performance Fee HF (20%) / PG ABS (15%) 1.4% – 3.2% 1.2% - 2.5% Hedge Fund Return Net of Fees 5.6% - 12.8% 6.6% - 14.2% Management Fee FoF (1%) 1.0% Performance Fee FoF (10% above US LIBOR) 0.2% - 0.9% FoF Return Net of Fees 4.4% - 10.9% 6.6% - 14.2% Share of Return Payed Off to Investor 90% 80% 70% 60% 50% 40% 30% FoF 20% PG ABS 10% 0% % % % % % 4 6 8 0% 4 8 1 12% 1 16% 1 20% 22% 24% 26% 28% 30% Gross of Fees Return Total fee savings potential: 220 bps – 330 bps p.a. Why hedge fund replication is interesting Fees II: Do you really need to pay asymmetric performance fee in fund of funds? 14 The ABS performance fee is only paid on the netted performance. In contrast, for a portfolio of hedge funds the performance is not netted. Gross Gross Net Performance ABS: Performance Performance combined: After 15% Hedge Fund 1 Hedge Fund After 20% performance performance 2 fees fees +12% +9.6% +5.1% = +3.6% -6% -6% Total fee savings potential: 40 bps – 80 bps p.a. Why hedge fund replication is interesting Fees III: How can you avoid to pay prime brokers excess leverage financing fees 15 ABS typically employ instruments like futures and options that allow exposure to the desired market with only a fractional size of the underlying cash. Therefore cash can be employed several times. Leverage without external borrowing Hedge Fund B ABS pays Libor +45 bps for leverage External borrowing Hedge Fund A excess cash Traditional receives Libor Fund of -35 bps for funds: required collateral excess cash No access to excess cash Average Exposure of Fund of funds Exposure … HF A HF B HF n Total fee savings potential: 40 bps – 80 bps p.a. 5 Table of contents 16 I Alpha versus Beta in hedge fund returns II Implications: Why hedge fund replication is interesting III The two essential approaches IV Core – Satellite portfolios: A new paradigm to hedge fund investing The two essential approaches Modeling Alternative Beta: Two Different Approaches 17 A. Top down: Linear Regression Approach (RFS) Identify Factors Invest Replication through Direct exposure generic (linear) risk to explaining exposure (Replicating factors Factor Strategies - RFS) B. Bottom up: Non-linear rule-based Approach (AltBeta Strategies) Identify Well known Invest Risk Premia ideas With rule-based Identify various Hedge Identified Risk Premia approach like Fund Risk Premia by backed by academic Hedge Funds do analyzing the industry research The two essential approaches 1.
Recommended publications
  • ALTERNATIVE BETA MATTERS Quarterly Newsletter - Q4 2017
    Alt Beta Newsletter 30th October 2017 ALTERNATIVE BETA MATTERS Quarterly newsletter - Q4 2017 Introduction Welcome to CFM’s Alternative Beta Matters Quarterly Newsletter. Within this report we recap major developments in the Alternative Industry, Equities, Fixed Income / Credit, FX and Commodities as well as Trading Regulations. All discussion is agnostic to particular approaches or techniques, and where alternative benchmark strategy results are presented, the exact methodology used is given. We have also included one white paper and an extended academic abstract from a paper published during the quarter. Our hope is that these publications, which convey our views on topics related to Alternative Beta that have arisen in our many discussions with clients, can be used as a reference for our readers, and can stimulate conversations on these topical issues. Contact details Call us +33 1 49 49 59 49 Email us [email protected] www.cfm.fr CFM Alternative Beta Matters Total return for Equity Market Neutral (EMN) and CTA Quarterly review hedge fund indices over the past year1 Quantitative overview of key developments in Q3 2017 Alternative industry performance The principal implied volatility indices across four asset classes over the past year2 After a challenging Q2, Commodity trading advisors (CTAs) posted a relatively neutral quarter. Whilst the HFRX Equity Market Neutral index put in a solid showing, increasing 2.1%, the Equity Hedge index was the best performer in the HFRX universe with a 3.2% gain. At the other end of the scale, the Event Driven Distressed Restructuring index fared the worst, losing 0.1%. CTAs clawed back some of the losses in Q2, with the The log of the dollar risk weighted average daily volume 3 benchmark SG CTA index gaining 0.7% over the period.
    [Show full text]
  • Alternative Beta
    What a CAIA Member Should Know Alternative Beta: Redefining Alpha and Beta Soheil Galal Alternative beta (alt beta) strategies extend These strategies can complement traditional, Managing Director the concept of “beta investing” from long-only actively managed hedge fund allocations and Global Investment Management traditional strategies to strategies that include provide more discriminating tools to support Solutions, J.P. Morgan Asset Management both long and short investing. Although alt alternative manager due diligence. beta approaches have relevance for different Alternative beta (alt beta) strategies have Rafael Silveira categories of alternatives, this article focuses opened a new avenue for accessing the Executive Director and Portfolio on hedge fund-related strategies, currently the investment characteristics for which hedge Strategist, most prevalent form. Institutional Solutions & Advisory funds have become highly valued. J.P. Morgan Asset Management Alt beta strategies are rules-based strategies These strategies provide ready access to designed to provide access to the portion of Alison Rapaport uncorrelated returns that can help improve hedge fund returns attributable to systematic Associate and Client Portfolio portfolio diversification, risk-return efficiency, risks (beta) vs. idiosyncratic manager skill Manager, and volatility management—without the high Multi-Asset Solutions, (alpha). As a result of these new strategies, a fees, lock-ups, and limited transparency often J.P. Morgan Asset Management component of hedge fund returns previously associated with hedge funds.1 viewed as alpha has been redefined as beta. A passive, rules-based approach gives alt beta We see this redefinition of alpha as beta to be a strategies the ability to provide liquid, low- transformational trend in hedge fund investing: cost, and transparent access to the beta (vs.
    [Show full text]
  • Tracking Problems, Hedge Fund Replication, and Alternative Beta
    PART 1 Tracking Problems, Hedge Fund Replication, and Alternative Beta Thierry Roncalli — Professor of Finance, University of Evry, and Head of Research and Development, Lyxor Asset Management 1 Guillaume Weisang — Doctoral Candidate, Bentley University Abstract (2008), we detail how the Kalman !lter tracks changes in As hedge fund replication based on factor models has en- exposures, and show that it provides a replication methodol- countered growing interest among professionals and aca- ogy with a satisfying economic interpretation. Finally, we ad- demics, and despite the launch of numerous products (in- dress the problem of accessing the pure alpha by proposing dexes and mutual funds) in the past year, it has faced many a core/satellite approach of alternative investments between critics. In this paper, we consider two of the main critiques, high-liquid alternative beta and less liquid investments. Non- namely the lack of reactivity of hedge fund replication, its normality and non-linearities documented on hedge fund de!ciency in capturing tactical allocations, and the lack of returns are investigated using the same framework in a com- access to the alpha of hedge funds. To address these prob- panion paper [Roncalli and Weisang (2009)]. lems, we consider hedge fund replication as a general track- ing problem which may be solved by means of Bayesian !l- 1 The views expressed in this paper are those of the authors and do not nec- ters. Using the example provided by Roncalli and Teiletche essarily represent those of Lyxor Alternative Investments. 19 Over the past decade, hedge fund replication has encountered a growing tracking problems and Bayesian !lters and their associated algorithms, interest both from an academic and a practitioner perspective.
    [Show full text]
  • Hedge Fund Replication and Alternative Beta
    Investing in Hedge Funds HF Replication and Tracking Problems Alpha Considerations Conclusion Appendix Hedge Fund Replication and Alternative Beta Thierry Roncalli1 Guillaume Weisang2 1Évry University, France 2Department of Mathematical Sciences, Bentley University, MA Laboratoire J. A. Dieudonné, Université de Nice Sophia-Antipolis, April 29, 2009 Thierry Roncalli, Guillaume Weisang HF Replication and Alternative Beta Investing in Hedge Funds HF Replication and Tracking Problems Alpha Considerations Conclusion Appendix Outline 1 Investing in Hedge Funds The Success of the Hedge Fund Industry Hedge Fund Replication Factor Models Previous Works 2 HF Replication and Tracking Problems Tactical Asset Allocation and Tracking Problems Hedge Fund Replication: The Linear Gaussian Case Hedge Fund Replication: The Non-Linear Non-Gaussian Case 3 Alpha Considerations What is Alpha? Explaining the Alpha The Core/Satellite Approach 4 Conclusion HF Replication in Practice Main Ideas 5 Appendix Thierry Roncalli, Guillaume Weisang HF Replication and Alternative Beta Investing in Hedge Funds The Success of the Hedge Fund Industry HF Replication and Tracking Problems Hedge Fund Replication Alpha Considerations Factor Models Conclusion Previous Works Appendix The Success of the Hedge Fund Industry Hedge-Funds (HF) deliver higher Sharpe ratios than Buy-and-Hold strategies on traditional asset classes1: HFRI SPX UST Annualized Return 9.94% 8.18% 5.60% 1Y Volatility 7.06% 14.3% 6.95% Sharpe 0.77 0.26 0.18 The performance behaviour of the HF industry was very
    [Show full text]
  • Thinking Alternative
    Alternative Thinking The Role of Alternative Beta Premia While risk parity strategies are our highest-capacity answer for investing in long-only, core asset classes, alternative beta premia – dynamic long-short strategies, are another highly effective way to further seek diversified sources of return. Alternative beta premiums can be classified in many ways ‒ by asset class, liquidity, long/short volatility, convergent/divergent, etc. To us, the most useful classifications are hedge fund strategy premia and style premia – two complementary perspectives. AQR Capital Management, LLC Two Greenwich Plaza Greenwich, CT 06830 Third Quarter 2012 p: +1.203.742.3600 f: +1.203.742.3100 w: aqr.com Alternative Thinking | The Role of Alternative Beta Premia 1 The Role of Alternative Beta Premia they require some use of derivatives, leverage and/or short-selling. Alternative beta premia can be Executive Summary classified in many ways ‒ by asset class, liquidity, Alternative Beta Premia are long-short sources long/short volatility, convergent/divergent, etc. To of returns that are economically-intuitive, us, the most useful classifications are hedge fund systematic and persistent due to behavioral strategy premia and style premia – two biases, structural inefficiencies or compensation complementary perspectives. for bearing risk. Hedge Fund Premia We believe the two most useful classifications of Alternative Beta Premia are 1) hedge fund Hedge fund strategy premia are returns of long- strategy premia and 2) style premia. short strategies traditionally employed by hedge We believe liquid portfolios should contain a funds. AQR’s takes a bottom-up approach in combination of alternative beta premia with building a collection of these premia, built from market risk premia, which we believe offer dozens of strategies and thousands of positions, investors a more reliable way to reach CPI+5% aggregated to nine categories based on the Credit targets.
    [Show full text]
  • Alternative Beta Strategies and Hedge Fund Replication
    P1: JYS fm JWBK289-Jaeger August 4, 2008 14:18 Printer: Yet to come Alternative Beta Strategies and Hedge Fund Replication Lars Jaeger with Jeffrey Pease i P1: JYS fm JWBK289-Jaeger August 4, 2008 14:18 Printer: Yet to come i P1: JYS fm JWBK289-Jaeger August 4, 2008 14:18 Printer: Yet to come Alternative Beta Strategies and Hedge Fund Replication i P1: JYS fm JWBK289-Jaeger August 4, 2008 14:18 Printer: Yet to come Alternative Beta Strategies and Hedge Fund Replication Lars Jaeger with Jeffrey Pease i P1: JYS fm JWBK289-Jaeger August 4, 2008 14:18 Printer: Yet to come Copyright C 2008 John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England Telephone (+44) 1243 779777 Email (for orders and customer service enquiries): [email protected] VisitourHomePageonwww.wiley.com All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP, UK, without the permission in writing of the Publisher. Requests to the Publisher should be addressed to the Permissions Department, John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England, or emailed to [email protected], or faxed to (+44) 1243 770620. Designations used by companies to distinguish their products are often claimed as trademarks.
    [Show full text]
  • ALTERNATIVE BETA MATTERS Quarterly Newsletter - Q2 2020
    Alt Beta Newsletter 1 May 2020 ALTERNATIVE BETA MATTERS Quarterly Newsletter - Q2 2020 Introduction Welcome to CFM’s Alternative Beta Matters Quarterly Newsletter. Within this report we recap major developments in the Alternative Industry, together with a brief overview of Equity, Fixed Income/Credit, FX and Commodity markets as well as Trading Regulations and Data Science and Machine Learning news. All discussion is agnostic to particular approaches or techniques, and where alternative benchmark strategy results are presented, the exact methodology used is given. It also features our ‘CFM Talks To’ segment, an interview series in which we discuss topical issues with thought leaders from academia, the finance industry, and beyond. We have included an extended academic abstract from a paper published during the quarter, and one whitepaper. Our hope is that these publications, which convey our views on topics related to Alternative Beta that have arisen in our many discussions with clients, can be used as a reference for our readers, and can stimulate conversations on these topical issues. Contact details Call us +33 1 49 49 59 49 Email us [email protected] www.cfm.fr CFM Alternative Beta Matters CONTENTS 3 Quarterly review 12 Extended abstract Co-impact: Crowding Effects in Institutional Trading Activity 12 Other news 13 CFM Talks To Stéphane Boujnah 19 Whitepaper ‘Lucking up’ Until beta fails www.cfm.fr 02 CFM Alternative Beta Matters The principal implied volatility indices across four asset classes Quarterly review over the past year2 Quantitative overview of key developments in Q1 2020 The log of the dollar risk weighted average daily volume across Alternative industry performance futures on the four asset classes over the past year3 The COVID-19 pandemic is an unprecedented and global disruptive force, with various mitigation measures playing havoc on all parts of daily life.
    [Show full text]
  • Alternative Equity Beta Investing: a Survey
    An EDHEC-Risk Institute Publication Alternative Equity Beta Investing: A Survey July 2015 with the support of Institute Printed in France, July 2015. Copyright EDHEC 2015. The opinions expressed in this study are those of the authors and do not necessarily reflect those of EDHEC Business School. 2 This research is conducted as part of the Sociéte Générale Prime Services "Advanced Modelling for Alternative Investments" research chair at EDHEC-Risk Institute. Alternative Equity Beta Investing: A Survey — July 2015 Table of Contents Executive Summary .................................................................................................5 Introduction ...............................................................................................................17 Part I: Conceptual Background: The Forms of Smart and Alternative Beta in the Equity Univers ............................................................................................. 21 1. The Emergence of Alternatives to Cap-weighted Indices .................................. 23 2. Equity Risk Factors and Factor Indices ................................................................... 31 3. Diversification Strategy Indices ............................................................................. 83 4. Portfolio Construction Across Alternative Equity Beta Strategies .............. 95 Part II: Survey: Use of Smart Equity Beta Strategies and Perceptions of Investment Professionals ............................................................................... 107
    [Show full text]
  • Columbia Alternative Beta Fund Diversifying Differently
    COLUMBIA ALTERNATIVE BETA FUND DIVERSIFYING DIFFERENTLY Share class A Advisor C Institutional Institutional 2 Institutional 3 R Symbol CLAAX CLFUX CLABX CLAZX CLIVX CLAYX CRRLX This is a specialized fund. Please see risk disclosure for important information. “ AS INVESTORS URGENTLY SEEK WAYS TO TRULY DIVERSIFY THEIR PORTFOLIOS, ALTERNATIVE BETA STRATEGIES OFFER A LOW-COST, LIQUID ALTERNATIVE TO MULTI-STRATEGY AND FUND-OF-HEDGE FUNDS.” BILL LANDES HEAD OF GLOBAL INVESTMENT SOLUTIONS THINK DIFFERENTLY TO ACHIEVE YOUR GOALS Over the last several decades, a portfolio invested across stocks and bonds struck a nice balance between risk and return. But in today’s environment of subpar economic conditions around the world, in which stock and bond returns are likely to remain modest, achieving improved risk-adjusted returns through traditional asset class diversification has become extraordinarily challenging. And while formerly considered a valuable diversification tool, even hedge funds are coming up short. To respond to this environment, you need to think differently. It’s time to consider new sources of return — and new sources of diversification — and look for meaningful ways to incorporate them into your portfolio. FOLLOW AN ALTERNATIVE PATH TO DIVERSIFICATION Based on a highly respected body of academic research spanning nearly 40 years, alternative beta strategies target absolute returns that are not market directional and therefore lowly correlated to major asset classes. They are also more liquid and transparent than traditional hedge funds and carry far lower fees. Given today’s low interest rates and the potential for rates to rise, it is critical to make sure that your portfolio can withstand increasing market volatility.
    [Show full text]
  • Diversifying Alpha with Alternative Beta
    SPONSORED COMMENTARY Diversifying alpha with alternative beta Metzler Asset Management’s experience has shown It is perhaps not surprising that, given Metzler’s that outside traditional equity and bond investments German heritage, the SDA strategy uses a precisely there are additional attractive sources of systematic engineered approach to simultaneously combine the risk premia that investors should consider accessing three alternative systematic risk premia harvesting that are distinct from idiosyncratic risks. For example, strategies without relying on opportunistic re- “carry”, momentum and volatility are sources balancing. Moreover, the low correlation of the of alternative risk premia that are systematically strategies to each other leads to a high degree of captured in Metzler’s Systematic Diversified Alpha diversification. (SDA) strategy. Each is harvested using a number of different strategies, with the SDA strategy as a whole For example, trend-following models capitalise having exposure to 15 or more separate systematic on market phases with pronounced trends, while, trading strategies using liquid markets that capture conversely, certain option strategies benefit from risk premia in different ways. markets with no trends. The diverse collection of models systematically trade bond, equity and foreign Sebastian Napiralla, The simplest of Metzler’s choice of investable exchange derivative contracts to produce returns Portfolio Manager, alternative risk premia to understand is the one that are independent of market returns. Combining a Metzler Asset Management GmbH associated with carry trades, which rely on borrowing number of such models results in more stable returns at a low rate and lending at a higher rate. This can for the SDA strategy as a whole.
    [Show full text]
  • ALTERNATIVE BETA MATTERS Quarterly Newsletter - Q2 2019
    Alt Beta Newsletter 1 May 2019 ALTERNATIVE BETA MATTERS Quarterly Newsletter - Q2 2019 Introduction Welcome to CFM’s Alternative Beta Matters Quarterly Newsletter. Within this report we recap major developments in the Alternative Industry, together with a brief overview of Equity, Fixed Income/Credit, FX and Commodity markets as well as Trading Regulations and Data Science and Machine Learning news. All discussion is agnostic to particular approaches or techniques, and where alternative benchmark strategy results are presented, the exact methodology used is given. It also features our ‘CFM Talks To’ segment, an interview series in which we discuss topical issues with thought leaders from academia, the finance industry, and beyond. We have included an extended academic abstract from a paper published during the quarter, and one white paper. Our hope is that these publications, which convey our views on topics related to Alternative Beta that have arisen in our many discussions with clients, can be used as a reference for our readers, and can stimulate conversations on these topical issues. Contact details Call us +33 1 49 49 59 49 Email us [email protected] www.cfm.fr CFM Alternative Beta Matters CONTENTS 3 Quarterly review 11 Extended abstract How should you discount your backtest PnL? 12 CFM Talks To Professor Johannes Muhle-Karbe Director of the CFM-Imperial Institute of Quantitative Finance 15 Other news 16 Whitepaper Packed in like sardines: how crowding in trade flows can adversely affect execution costs www.cfm.fr 02 CFM Alternative Beta Matters global markets rallied, rounded off the first quarter of 2019 Quarterly review with a 1.9% gain.
    [Show full text]
  • Credit Suisse (Lux)
    July 30, 2021 Luxembourg Risk profile (SRRI) 1) 1 2 3 4 5 6 7 Credit Suisse (Lux) Liquid Alternative Beta a subfund of CS Investment Funds 4 - Class FB USD Investment policy Net performance in USD (rebased to 100) and yearly performance 2) The Fund seeks to offer liquid, transparent and 160 60% broadly diversified exposure to the risk and return 150 50% characteristics of hedge funds. The Fund implements 140 40% its strategy primarily based on the three hedge fund 130 30% strategies Long/Short Equity, Event Driven and 120 20% Global Strategies, and may invest in equities and 12.9 110 7.6 7.9 7.3 10% equity-type securities, fixed-income securities, cash 3.2 4.5 4.2 100 0% and cash equivalent, currencies as well as financial -0.8 -3.9 90 -10% derivative instruments. 2013 2014 2015 2016 2017 2018 2019 2020 2021 CS (Lux) Liquid Alternative Beta FB USD Yearly or year-to-date performance respectively (Fund) Fund facts Fund manager Credit Suisse Asset Management LLC The document reflects performance of the shareclass CS (Lux) Liquid Alternative Beta FB USD Fund manager since 03/10/2014 extended with track record of oldest equivalent institutional share class of the fund. Location New York 2) Management Credit Suisse Fund Management Net performance in USD company S.A. 1 month 3 months YTD 1 year 3 years 5 years ITD Fund domicile Luxembourg Class FB USD -0.50 0.84 7.27 18.70 26.28 33.58 50.64 Fund currency USD Benchmark 0.28 0.70 6.26 13.93 18.51 30.36 47.17 Close of financial year 30.
    [Show full text]