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How To Get Statistically Significant Alpha In A Hurry: Financial Advisors’ Daily Digest
MFS Investment Management argues active management can consistently deliver alpha; Mark Hebner says investors would be better off seeking beta. Ronald Surz says investors need not wait decades to determine statistically significant alpha; he offers “microwave alpha,” a quick way to measure manager skill. Jack Waymire gives five reasons why mobile-optimized websites are no longer a luxury for financial advisors. To frightened investors who sense something bad is due after a seven-year bull market and amidst a wobbly economy, MFS Investment Management’s commercials touting a “significant advantage to active management” may be striking just the right chord. These investment pros are working to reduce “downside volatility” and to “consistently deliver alpha,” says the investment firm’s one-and-a-half-minute commercial on the power of active management. But of course, not everybody’s having it. RIA Mark Hebner, a proponent of indexing, applies statistical tests to MFS’ fund lineup and suggests just one out of 87 funds has any alpha to offer (and even that one could be a fluke, Hebner further argues). He concludes that investors would be better served seeking beta. Hebner has previously argued that it could take something like a century to evaluate investment skill in a statistically significant way. Comes along SA contributor Ronald Surz, an innovative thinker, and proposes a method to deliver statistical significance in years rather than decades: “microwave alpha,” he calls it . This quick-cooking alpha is achieved through portfolio simulations: “The breakthrough determines statistically significant success in the cross-section rather than across time… A portfolio simulator creates all the portfolios the manager might have held, selecting stocks from a custom benchmark – thousands of portfolios… To state an extreme example, a return of, say, 1000% is significant, and you don’t have to wait 50 years to declare it significant.” With no further ado, we’ve got many other advisor-relevant stories to start your week with: Your comments on any of the above are, as always, most welcome below.
Google Worries Mount Over EU Antitrust Fine, Oracle Case Outcome
The European Commission may hit Alphabet ‘s ( GOOGL ) Google with a $3.4 billion fine as early as June on grounds that the U.S. Internet giant favors its own shopping service in Internet searches. The European Union’s biggest antitrust fine to date was $1.45 billion, against chipmaker Intel ( INTC ) in 2009. The EU in 2013 also fined Microsoft ( MSFT ) $730 million for failing to respect an antitrust settlement with regulators. The most Google could be fined would be 10% of annual revenue under EU law, which would be roughly double the $3.4 billion fine. Google posted revenue near $75 billion in 2015 and reported $75.3 billion in cash, cash equivalents and marketable securities in its Q1 earnings release. The Sunday Telegraph first reported the antitrust fine. Google has not commented. The EU’s European Commission (EC) regulators in recent years have investigated other U.S. companies — including Amazon.com ( AMZN ), Facebook ( FB ) and Apple ( AAPL ) — over antitrust and privacy issues. If the EU fines Google, it would put U.S. regulators in the spotlight. The Federal Trade Commission in 2013 ended an investigation into whether Google abused its dominance in the Internet search market without bringing charges. The EU has opened up a separate probe involving Google’s Android smartphone software. Meanwhile, a copyright infringement case involving Oracle ( ORCL ) and Google is heading into its second week. Oracle claims Google violated its copyright on parts of the Java programming language when it created the Android mobile operating system, now used in mobile phones worldwide. Oracle is seeking $8.8 billion in damages. “If the EC does issue the ruling, Google is required to comply with the nondiscrimination ruling even while pursuing a possible court appeal, which could take three to five years,” said Paul Gallant, an analyst at Guggenheim Partners, in a research report. “This is not well understood by investors. “In addition, if Google refuses to comply — or if its revisions are deemed inadequate — it can be subject to an ongoing noncompliance fine of up to 5% of its global annual revenues, pro-rated daily.” Alphabet stock was flat in early trading, near 724. Alphabet stock broke out of a cup-with-handle base at a 777.41 buy point on April 14, but it is now near the 7% to 8% decline where selling shares is recommended.