So the World Money show in Toronto is finished! It was well organized and I met a lot of nice individuals. I was able to take in four speeches at the World Money Show. Since I am a systematic trader I didn’t want to spend too much time in the speeches that talked about systematic trading even though I did take in one speech about “Backtesting and its Pitfalls” which was well done. I heard a particular phrase being mentioned a lot which was that hedge funds this year weren’t pulling their weight compared to the S&P 500. Even though no figures were mentioned, it was brought up on three different occasions, in three different speeches.
So I fired up excel to see if this is true. To see if this year so far if any hedge fund strategies have produced any alpha – Alpha takes the volatility (price risk) of a fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund’s alpha. Also I wanted to see how Hedge Funds this year did in the Beta department – A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.
and the formula used to find out Alpha is:
Below are the results of the test.
It seems all the presenters were right; Hedge Funds even systematic funds haven’t done well this year. There is one exception which would be Market Neutral strategies which seem to have done better than any other strategies so far. Keep in mind the fourth quarter results for the hedge funds aren’t included in the test. October, November and December can be stellar months. All the data for the hedge fund strategies with the exception of IASG were taken from barclayhedge.com and the data for IASG can be found at www.iasg.com