Author Archives: Scalper1
Liquid Alternative Investments For Ordinary Investors
Barron’s did a nice special report this week on AQR’s liquid alternative investments. AQR, which is run by Cliff Asness, John Liew and David Kabiller, is a pioneer in the liquid alternatives space and manages an impressive $141 billion in assets. They also happen to be a competitor of mine. My partner, Dr. Phillip Guerra, has developed an entire suite of liquid alternative strategies based on many of the same principles used by AQR. As Barron’s writes, Since U.S. stocks peaked in July, few investments have produced strong returns. Global stocks, junk bonds, and most commodities have declined-in many cases, sharply. And many so-called alternative investments have failed to provide hoped-for diversification benefits. Just look at the big losses suffered by some notable hedge funds. The situation hasn’t been much better among liquid alternatives, or mutual funds that use hedge fund strategies such as merger and convertible arbitrage, long/short equity, and trend-following in futures markets. Yet, against this tough backdrop, a bunch of academics are delivering. Their firm, AQR Capital Management (AQR stands for applied quantitative research), is a distinctive investment manager that seeks to translate academic insights about finance and the markets-such as the appeal of value and momentum investing-into winning quantitative strategies for institutional and retail buyers… Indeed, the stock market selloff since the start of this year has shaped up as a key test of whether liquid alts can deliver the promised diversification and protect investors during downturns. Liquid-alt funds have been rightly criticized for generally disappointing returns during the recent bull market-and high fees, to boot. During a raging bull market, alternative strategies will almost always underperform… as will most traditional long-only active managers. It makes sense to dump every last cent into an S&P 500 index fund and be done. But the kind of market we’ve experienced since 2009 isn’t normal. It was a product of low valuations following the 2008 meltdown and the loosest monetary policy in history from the Fed. But with the market now in expensive territory and with the Fed’s easy money policies slowly on the way out, an alternative strategy makes all the sense in the world, at least with a portion of your portfolio. You want returns that are uncorrelated to the market. You’re not betting against the market, mind you. You’re just looking for something that marches to the beat of its own drum. I like what AQR is doing. But there’s a big problem with it: While they advertise that their alternative funds are liquid, they are all but unattainable for the vast majority of investors. The minimum investment on many of their mutual funds is as high as $1 million. We can do it better. With an investment of just $100,000 (and actually less with our robo-advisor option), we can execute a comparable strategy and do so with far lower fees. To see how our results stack up against AQR and the rest, take a look here . I’m a big believer in the benefits of a long-term buy-and-hold strategy, particularly for younger investors. But I’m also realistic and realize fully that a long-only strategy will go through long periods of underperformance. From 1968 to 1982 – a period of 14 years – long-only investors in U.S. stocks wouldn’t have earned a single red cent. Now, I have no way of knowing if we are about to enter a long dry spell like that. But if you are in or near retirement, doesn’t it make sense to have at least a portion of your portfolio in a strategy that zigs when the market zags? Disclaimer: This article is for informational purposes only and should not be considered specific investment advice or as a solicitation to buy or sell any securities. Sizemore Capital personnel and clients will often have an interest in the securities mentioned. There is risk in any investment in traded securities, and all Sizemore Capital investment strategies have the possibility of loss. Past performance is no guarantee of future results. This article first appeared on Sizemore Insights as Liquid Alternative Investments for Ordinary Investors
Goldman Sachs Files For 2 New ETFs
In the last couple of years, ETFs have witnessed surging popularity as they continue to grow and evolve. With a number of products being launched and fees being slashed, ETFs have grown more competitive over time, forcing issuers to foray into spaces where none has gone before. Goldman Sachs (NYSE: GS ), which has recently filed two new ETFs, Goldman Sachs Hedge Fund VIP ETF and Goldman Sachs High Sharpe Ratio ETF , will use the bank’s own research reports, Hedge Fund Trend Monitor and U.S. Weekly Kickstart strategy report, respectively, as the basis of selection. Let’s dig a little deeper. Proposed Funds in Detail As per the SEC filing, the proposed Goldman Sachs Hedge Fund VIP ETF will track the performance of the Goldman Sachs Hedge Fund VIP Index. The Index provides exposure to equity stocks, which are expected to influence the long portfolios of hedge funds. These equity securities generally appear most frequently among the top ten equity holdings of U.S. hedge funds that select their positions based on fundamental analysis. The index comprises 50 securities with a market capitalization of approximately $2.5 billion to $715.6 billion, as per the filing. Meanwhile, Goldman Sachs High Sharpe Ratio ETF will track the performance of the Goldman Sachs High Sharpe Ratio Index, thereby providing exposure to large-cap U.S. stocks with the highest projected Sharpe ratio – a widely used measure of risk-adjusted return. The index comprises 50 securities with a market capitalization of approximately $4.2 billion to $212.3 billion, as per the filing. The constituents of the index are equal-weighted with a 2% basket weight each. This is the first ETF to be constructed around the Sharpe ratio. Both the funds are expected to be listed on the NYSE Arca. The expense ratio and the ticker code of the funds are yet to be disclosed. How Does it Fit in a Portfolio? The proposed Goldman Sachs Hedge Fund VIP ETF will be a good option for investors seeking high returns and who possess a healthy risk appetite. As per an Investopedia report, The Goldman Sachs Hedge Fund VIP Index has appreciated approximately 80% since mid-2012 while the S&P 500 was up approximately 51% in the period. Thus, the Hedge Fund VIP Index outperformed the S&P 500 even during a raging bull period. However, given the current bearish environment led by global growth worries, China turmoil and slump in oil prices, investors should be cautious (read: Best ETF Strategies to Survive Market Turmoil ). Goldman Sachs High Sharpe Ratio ETF will be an innovative product providing risk-adjusted return with low concentration risk. The Sharpe ratio can be defined as excess return i.e. difference between asset return and risk free return for per unit of risk dominated by standard deviation. However, the Sharpe ratio is sometimes criticized as it does not differentiate between upside and downside deviation. Thus, it penalizes stocks for its potential to gain. Although the filing did not state the fees the new ETFs will charge, it is expected that they will not be very high, considering Goldman’s strategy of charging below-average fees for a number of ETFs including smart-beta ETFs. The Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (NYSEARCA: GSLC ) launched in September 2015 has accumulated $300.8 million in its asset base and has an expense ratio of 0.09% (read: Can Goldman Dominate the Smart Beta ETF Industry? ). ETF Competition These new funds, if approved, could be interesting options for investors seeking a diversified exposure amid the current market turmoil. Goldman Sachs High Sharpe Ratio ETF doesn’t have a direct contender. The fund would definitely get the first mover advantage, as it will be the first ETF in the space. Meanwhile, Goldman Sachs Hedge Fund VIP ETF providing exposure to a niche market may face competition from other ETFs tracking hedge funds’ stock holdings. The Global X Guru ETF (NYSEARCA: GURU ) is one of the popular ETFs in this space with an AUM of $119.7 million and trades in average volume of almost 40,000 per day. The fund has a high expense ratio of 0.75% and returned slightly almost 10% so far this year. Another ETF is this space is the AlphaClone Alternative Alpha ETF (NYSEARCA: ALFA ) with an AUM of $106.4 million. The fund trades in average volume of almost 44,000 per day. The fund has a high expense ratio of 0.95% and returned slightly almost 7% so far this year. So, the road ahead is definitely promising for the new ETF as it has potential to provide a lucrative option to investors. Link to the original post on Zacks.com