Do Hedge Funds Hedge? Asness, Cliff S. and Krail, Robert and Liew, John M. (May 2001)

Asness, Cliff S. and Krail, Robert and Liew, John M., Do Hedge Funds Hedge? (May 2001). Available at SSRN: https://ssrn.com/abstract=252810 or http://dx.doi.org/10.2139/ssrn.252810 

Abstract

In addition to attractive returns, many hedge funds claim to provide significant diversification for traditional portfolios. This paper empirically examines the return and diversification benefits of hedge fund investing using the CSFB/Tremont hedge fund indices from 1994-2000. We, like many others, find that simple regressions of monthly hedge fund excess returns on monthly S&P 500 excess returns seem to support the claims. The regressions show only modest market exposure and positive added value. However, this type of analysis can produce misleading results. Many hedge funds hold, to various degrees and combinations, illiquid exchange-traded securities or difficult-to-price over-the-counter securities. For the purposes of monthly reporting, hedge funds often price these securities using either last available traded prices or estimates of current market prices. These practices can lead to reported monthly hedge fund returns that are not perfectly synchronous with monthly S&P 500 returns due to the presence of either stale or "managed" prices. Non-synchronous return data can lead to understated estimates of actual market exposure. We employ standard techniques that account for this problem and find that hedge funds in the aggregate contain significantly more market exposure than simple estimates indicate. Furthermore, after accounting for this increased market exposure, we find that taken as a whole the broad universe of hedge funds does not add value over this period. With the stock market still near all-time high valuations, investors who view their hedge funds as protection from a market correction should consider this a potentially serious issue.
 

The Siren Song of Factor Timing. Asness, Cliff S. (April 12, 2016)

Asness, Cliff S., The Siren Song of Factor Timing (April 12, 2016). Journal of Portfolio Management, Vol. Special Issue, No. 1, 2016. Available at SSRN: https://ssrn.com/abstract=2763956 or http://dx.doi.org/10.2139/ssrn.2763956 

 

Abstract

Everyone seems to want to time factors. Often the first question after an initial discussion of factors is “ok, what’s the current outlook?” And the common answer, “the same as usual,” is often unsatisfying. There is powerful incentive to oversell timing ability. Factor investing is often done at fees in between active management and cap-weighted indexing and these fees have been falling over time. Factor timing has the potential of reintroducing a type of skill-based “active management” (as timing is generally thought of this way) back into the equation. I think that siren song should be resisted, even if that verdict is disappointing to some. At least when using the simple “value” of the factors themselves, I find such timing strategies to be very weak historically, and some tests of their long-term power to be exaggerated and/or inapplicable.
 

Size Matters, If You Control Your Junk. Asness, Cliff S. and Frazzini, Andrea and Israel, Ronen and Moskowitz, Tobias J. and Pedersen, Lasse Heje, (January 22, 2015)

Asness, Cliff S. and Frazzini, Andrea and Israel, Ronen and Moskowitz, Tobias J. and Pedersen, Lasse Heje, Size Matters, If You Control Your Junk (January 22, 2015). Fama-Miller Working Paper. Available at SSRN: https://ssrn.com/abstract=2553889 or http://dx.doi.org/10.2139/ssrn.2553889  

Abstract

The size premium has been challenged along many fronts: it has a weak historical record, varies significantly over time, in particular weakening after its discovery in the early 1980s, is concentrated among microcap stocks, predominantly resides in January, is not present for measures of size that do not rely on market prices, is weak internationally, and is subsumed by proxies for illiquidity. We find, however, that these challenges are dismantled when controlling for the quality, or the inverse “junk”, of a firm. A significant size premium emerges, which is stable through time, robust to the specification, more consistent across seasons and markets, not concentrated in microcaps, robust to non-price based measures of size, and not captured by an illiquidity premium. Controlling for quality/junk also explains interactions between size and other return characteristics such as value and momentum.

Asness, Cliff S. and Brown, Aaron, Pulling the Goalie: Hockey and Investment Implications (March 1, 2018).

Asness, Cliff S. and Brown, Aaron, Pulling the Goalie: Hockey and Investment Implications (March 1, 2018). Available at SSRN: https://ssrn.com/abstract=3132563 or http://dx.doi.org/10.2139/ssrn.3132563  

Abstract

We build a simple, but powerful and intuitive, model for when a hockey coach should pull the goalie when trailing. When the model reports that the coaches aren’t doing it nearly early enough, we then ask why, and take away some key lessons for portfolio and risk management, and business in general.

Fact, Fiction, and Value Investing. ASNESS, C., FRAZZINI, A., ISRAEL, R., & MOSKOWITZ, T. (2015)

ASNESS, C., FRAZZINI, A., ISRAEL, R., & MOSKOWITZ, T. (2015). Fact, Fiction, and Value Investing. Journal of Portfolio Management, 42(1), 34–52. https://doi.org/10.3905/jpm.2015.42.1.034

Value investing has been a part of the investment lexicon for the better part of a century, with the diversified systematic value factor (or value effect) studied extensively since at least the 1980s. The authors aim to clarify the many remaining areas of confusion about value investing, focusing on the diversified systematic value strategy, but also exploring how this strategy relates to its more concentrated implementation. They highlight many points about value investing and attempt to prove or disprove each of them, referencing an extensive academic literature and performing simple, yet powerful, tests based on easily accessible, industry-standard public data.

Portfolio - 07/07/2019

Our current portfolio is composed of 20 stocks, the top 5 of which are Total SA ADR (TOT), Sanofi SA ADR (SFY), GlaxoSmithKline PLC (GSK), UnitedHealth Group (UNH), and Alphabet Inc Class C (GOOG).  The portfolio is composed 100% of large-cap equities, 41% of which are classified as Value, 46% Core, and 13% Growth.  Energy, Healthcare, and Technology sectors make up 72% of the portfolio.  Its P/E ratio and P/B ratios are 87% and 86% of the S&P 500’s, respectively, and its dividend yields 65% more than the S&P 500.

About Sawyer Investment Management Company:

SIMCO is a Texas-registered Investment Adviser with its principal place of business in Dallas, Texas. It was formed on January 1, 2015 and is wholly owned by Ryan Sawyer, who is a CFA Charterholder and a Certified Public Accountant.

SIMCO specializes in the construction of equity portfolios, and is therefore an ideal resource for long-term investors. The firm goes through a rigorous process for selecting each and every holding in the portfolio. Rooted in the empirical research of academia, the portfolios are generally characterized as large-cap value momentum. For more information about how the portfolios are managed, see our website.

www.sawyerinvestment.com
https://www.facebook.com/SawyerInvestment
https://twitter.com/SawyerInvest
https://sawyerinvestment.blogspot.com/