by Mebane Faber
Chris Shumway is the portfolio manager of Shumway Capital Partners. Shumway was the #2 to Julian Robertson at Tiger Management before leaving to start his own fund in 2001.
Trained in the classical long/short style of Tiger, Shumway is a great fund to investigate for cloning. We thought it might be even more instructive to compare a simple clone to the underlying fund's returns.
Since January of 2004, the S&P has returned about -2% a year, vs. 14% for Shumway's fund. That is some huge alpha!
Even more interesting, a simple clone of Shumway's Top Ten holdings, rebalanced quarterly, outperforms the underlying fund with returns of 20% a year. How is that possible? Well, the clone doesn't short, nor does it use the same position sizing and market timing as the manager. There are also those pesky 2 & 20 fees. If you add those back in you get, surprisingly, 20% returns.
What is Shumway investing in now? Healthcare is a common theme (TEVA, WYE), so are large technology stocks (MSFT, CSCO) and a couple of consumer financials (MA). Below is an equity curve of Shumway's fund, the long only clone, the long clone hedged 50%, and the S&P500.
Graph updated on 7/23/2009 to include results through May 2009
