This morning we added thirty new funds to our hedge fund roster. You can find a list of them here. Just like all other single funds, these funds are cloned for the various strategies available on AlphaClone including: Top 1, 3, 5, 10 and 20 Holdings and Best 1, 3, 5 and 10 Ideas.
But how are AlphaClone’s fund groups affected when new funds are added to the roster? For example, our Hedge Fund Index group combines all hedge funds in our database and clones the group collectively. There are two options:
A. The historical holdings from the new hedge funds are incorporate into the group since inception and all clone performance is recalculated to take into account the new funds’ contributions, or
B. The new funds’ historical holdings are ignored up to the quarter in which they are added and they are incorporated just on a going forward basis only.
Option A, essentially creates a new fund group while Option B has no impact on the historical returns of the group from inception (2000) up to when the new funds were added. Which is the better approach?
If AlphaClone had an investable version of the Hedge Fund Index group we would be loathe to impact the historical returns of the backtested model upon which those investable portfolios are based on. In other words, ignoring the new funds' historical holdings would be a better approach. On the other hand, the whole idea behind building AlphaClone was to make it super easy to test different combinations of funds so that you could optimize performance in a model upon which you can then create (presumably) better investable products. This is the boat we are in currently and thus we’ve chosen to recalculate historical performance for all clones based on fund groups that incorporate the new funds. Those fund groups include:
- AlphaClone Index
- AlphaClone Hedge Fund Index
- All Sector Picks groups
- All Cap Pick groups
We’re working on creating investable products from the fund groups above as well as others. Once the investable clones are made available we will follow Option B above and leave historical returns un-impacted by new fund additions to a group. For now, it’s test, optimize, repeat. We hope you have fun cloning our new fund additions and adding them to your existing/new custom groups.
