Herb Greenberg, CNBC's ETF correspondent, contacted me a few days ago by email to let me know he was doing a segment on odd ETFs. He found the fact our investment approach tracked public disclosures (despite their 45 day lag) qualified us as "odd". .
We responded to Herb the same day and explained to him that we've been doing research on institutional and hedge fund public disclosures since 2008 and that holding periods are a lot longer than most people think. On average managers in our universe tend to hold a position for a year but it can be a lot longer than that when looking at a manager's largest positions. Our research has also uncovered a few interesting facts about using disclosures to make investment decisions. Specifically, managers tend generate most of their alpha from their long positions, not their short positions. Manager positions also tend to be a lot less crowded than most people think and some times a clone of a manager's largest 10 positions will outperform the manager's actual net of fees performance. All these conclusions can be explored further in our presentation on the 5 Myths About Cloning Hedge Funds, which we shared with Herb.
We also encouraged him to not take our word for it. We offered him access to our research platform so he can explore 12 year backtests for thousands of different clone strategies across the 330 managers in our universe – he can see what the effect of the lag is for himself. Finally, we told him that we've been managing investment strategies based on our research for separate account clients since late 2010 and that we'd be happy to put him in touch with some of them if he were interested in learning more.
That's why we were a little surprised this morning when we saw his "funny" slide show on CNBC's website, despite our best efforts, Herb still felt compelled to persist in his humorous (we laughed) but obviously misguided opinion. His main point is that our approach is "wrong headed" because clone portfolios sell their positions only after the manager has exited the stock. Really? That's it? What about the thousands of clone portfolios on AlphaClone that do exactly that and yet put up impressive returns under any definition of that term? What about our Activist Masters strategy returning 7% last year when a vast majority of active managers were in pain? What about our Momentum strategy being up nearly 20% this year or our Select strategy outperforming any long/short index you care to mention since inception? The point is we don't have to argue about it - just look at the data.
Graciously, Herb has invited me on CNBC's Street Signs tomorrow to discuss our research and make our case - if we're not preempted by the SCOTUS Obama healthcare ruling first.
UPDATE: CNBC discussion postponed till Monday 7/3 at 2:40 pm ET. Meb Faber, AlphaClone friend and co-founder wrote a great article this morning on this subject and has presented research findings in the past as well. Thank you Meb.
