The Absolute Investor

Does Trend Following Work

2009-01-12T20:11:00.002-05:00

Richard Widows wrote in article in the Street.com about trend following strategies in mutual funds. Basically, he claims that they don't work. For his proof, he listed a group of funds with high returns in 2007 and poor returns this year. I do agree that chasing performance doesn't always work especially with sector, single country & regional funds but I don't think that should keep us away from trend following models that do work. I have back tested many trend and momentum models in stocks, funds and commodities, and if done correctly, they can be quite rewarding.

Widow's simple strategy was picking the fund with the highest return. If he had narrowed down his choices to diversified domestic and international funds, I'd take a guess that the returns of those funds would have been fairly OK in relation to the broad market. If you wanted the big returns, the portfolio would need to trade much more frequently, say quarterly or every couple of months (depending on the fund's short term redemption fees). Momentum changes throughout the year and I have found out that by following the momentum through the year you can piggy back on its returns and still perform better than the broad market indexes.

A Couple Noteworhy Links

2008-12-18T17:47:00.003-05:00

Are International Companies the Way to Go?

3X Leveraged International ETFs.

Yikes. Largest 6 Day Dollar Decline.

I'm Back

2008-12-10T21:04:00.002-05:00

Been extremely busy over the last two weeks with classes & work projects, but I'm back with a few links to check out:

Looks Like Portable Alpha Didn't Work Out As Expected

Market Folly Continues Its Listing of Hedge Fund Holdings

Total Bailout Costs From The Big Picture

What is the real Hedge Fund Index

Are we in a recession?

IndexIQ Launches a Hedge Fund Clone SMA. Still waiting on their ETFs...

Hedge Fund Performance in November. Compare against The Absolute Investor returns.

Computer Models Are Holding Up

New Investing Tools

A Fallen Legend

New ProFunds Hit the Market

2008-11-25T20:37:00.001-05:00

ProFunds has launched 12 new leveraged mutual funds, including commodities and currencies (Euro & Yen).

A New Fund to Keep My Eye on

2008-11-25T20:32:00.002-05:00

The Dover Long Short Sector Fund (DLSAX). High turnover and 1.75% expense ratio but it seems to be holding up with a basically flat return for the year.

We are creating a couple more model portfolios for our subscribers next year, one of which is a Long Short Sector Rotation Model. I wonder how our model will perform compared to this fund. At the very least it could provide a benchmark for the new model.

We are also looking into creating a Long Short Country Rotation Model and a Commodity Trading Model (CTA), similar to a manged futures hedge fund.

Hedged Mutual Funds

2008-11-24T22:25:00.002-05:00

Richard Widows at The Street details a few mutual funds with hedge fund strategies. We have our eye on all of them. Hopefully, more and more of these funds will become available as long as there are good managers running the ship.

Another Bailout. Who's Next

2008-11-24T22:22:00.003-05:00

Oy...Here we go again. But at least the markets up two days in a row.

Wondering if Citigroup got the automaker's money?

Unfortunately, we don't know if these bailouts will even work.

Hedge Funds Lost a Little Money Last Month

2008-11-24T22:19:00.002-05:00

$40 Billion. Ouch.

Performance hasn't been great. Our portfolio strategies are greatly performing the hedge fund indexes. I'd be curious to see who the top performers are on a regular basis.

New Buffet Moves

2008-11-17T22:06:00.002-05:00

In the most recent quarter, Buffet made a few under the radar moves. He bought Eaton (ETN), added to his stake in ConocoPhillips (COP), U.S. Bancorp (USB) and NRG Energy (NRG), while trimming CarMax (KMX), Bank of America (BAC), Lowes (LOW), and Home Depot (HD).

New Putnam Strategy

2008-11-17T22:03:00.002-05:00

Putnam is straying from quantitative investing and moving into more fundamental strategies in an effort to combat poor performance.

I can't see why they can't just use both. I have done extensive research on quantitative investment models and if done correctly, they can be quite profitable. Even the fundamental portfolios I track are quantitative in nature.

Farrell Thinking Depression

2008-11-17T21:59:00.001-05:00

Will we be heading into the next great depression? Paul Farrell thinks so.

Cuban and The SEC

2008-11-17T21:58:00.003-05:00

Looks like the Cuban has a little more on his plate. Probably doesn't bode well for his interest in the Cubs.

Astrology as an Investment Strategy

2008-11-10T21:38:00.002-05:00

Arch Crawford uses planetary cycles to dictate his investment philosophy. He is doing quite well I might add.

What's next clairvoyance?

Here's a Fund Manager Who's Holding His own

2008-11-10T21:37:00.001-05:00

http://www.marketwatch.com/news/story/meet-one-stock-fund-manager-almost/story.aspx?guid={C0887ACD-8A36-4A5C-AE5D-52D2D33F05C6}&siteid=yhoof

Hedge Fund Replication

2008-11-10T21:12:00.002-05:00

All About Alpha had a good post about Hedge Fund replication strategies missing factors. I was never a big fan of hedge fund replication strategies. I just don't see the point in investing in a hedge fund index when their returns tend to have a high correlation to the market anyway. You could do better following your own alternative strategy as our model portfolios are beating the pants off some well known hedge fund indexes.

ETFs With Even More Leverage

2008-11-04T20:33:00.002-05:00

Here we go. As the financial system is in the process of de-leveraging, Direxion is coming out with eight ETFs that offer even more leverage. Previously, if you wanted to add leverage to your portfolio you could invest in an ETF from ProShares or Rydex that offer twice the daily performance of each index. Now you can get three times the daily performance.

The eight ETFs include:

Direxion Large Cap Bull 3x (BGU)
Direxion Small Cap Bull 3x (TNA)
Direxion Energy Bull 3x (ERX)
Direxion Financial Bull 3x (FAS)
Direxion Large Cap Bear 3x (BGZ)
Direxion Small Cap Bear 3x (TZA)
Direxion Energy Bear 3x (ERY)
Direxion Financial Bear 3x (FAZ)

What a Month...

2008-11-01T13:24:00.002-04:00

Not the greatest month in the markets. The S&P was down 16.8% while the MS EAFE was down 20.2%.

It wasn't so bad for those of us following The Absolute Investor Model portfolios. Here are the portfolio returns for the month:

Mutual Fund Portfolios
Fund of Funds Model -0.5
Market Timing Model 0.0
S&P 500 -16.8

ETF Portfolios
Multi-Strategy Model 3.4
Leveraged Allocation Model 1.5
Market Timing Model 0.0
S&P 500 -16.8

Stock Portfolio
Long-Short Model 9.6
S&P 500 -16.8

Putnam Funds & The Separation of Alpha & Beta

2008-10-21T18:53:00.002-04:00

Looks like Putnam is launching a few absolute return funds.
http://allaboutalpha.com/blog/2008/10/06/new-putnam-funds-separate-alpha-and-beta-nearly/

Wow: Hedge Fund Manager Closes Shop with a Mouthful

2008-10-21T18:49:00.001-04:00

Andrew Lade of Lahde Capital Management has closed his fund but he left us with a very interesting letter.

What a Day....

2008-09-29T22:16:00.003-04:00

Final Damage:
Dow Drops 777.68 (-6.98%)
S&P 500 Drops 106.62 (-8.79%)
Nasdaq Drops 199.61 (-9.14%)

If you were invested in our ETF Leveraged Allocation Model you would have been flat today or you could have been up over 2% in our Long Short Stock Model.

The Markets
I guess you could say the market didn't like the House rejection of the "bailout" package. The credit markets have also frozen up even more. Maybe its time our leaders in Washington start looking into other options that may involve a little more balance sheet analysis. No one seems to have a clue.

This brilliant bailout plan was flawed from the start. I really can't see how taxpayers can make money from this plan.

What we should do is let these assets (& Real Estate Prices) devalue and make insolvent companies go into receivership by following the model set forth by Washington Mutual...

A Couple Economic Suggestions...

2008-09-23T21:38:00.003-04:00

John Hussman's Letter to US Congress
http://www.hussmanfunds.com/wmc/wmc080922.htm

Barry L. Ritholtz's 30/20/10 Proposal
http://bigpicture.typepad.com/comments/2008/09/fixing-housing.html

Morningstar To Take Over MSCI Hedge Fund Indexes

2008-09-23T21:32:00.000-04:00

MSCI will now have Morningstar calculate and distribute their hedge fund indexes. The indexes will still utilize the MSCI Barra methodology.

Many Hedge Fund Indexes have not fared much better than the market and many are down for the year. On the other hand, The Absolute Investor portfolios have been able to do what the indexes haven't; hedge the market.

New PowerShares Commodity ETFs

2008-09-23T20:50:00.000-04:00

4 New Commodity ETFs from PowerShares

PowerShares Global Agriculture (PAGG)
PowerShares Global Gold and Precious Metals (PSAU)
PowerShares Global Coal (PKOL)
PowerShares Global Steel (PSTL)

Black Monday-Free Issue

2008-09-15T20:43:00.000-04:00

Wow. Not a great day in the markets today. That's an understatement.

This is the great time to learn how to add hedge fund strategies to your portfolio. For a limited time, we are offering a free copy of this month's The Absolute Trader: ETF Edition.

Please sign up here: http://www.theabsoluteinvestor.com/Free_Sample.html

What Happens With Lehman ETNs?

2008-09-15T20:33:00.000-04:00

As some of you may know, An exchange traded note (ETN) works differently then an exchange traded fund (ETF). If you buy an ETF, you are owning shares of a physical asset, whereas if you buy an ETN, you are purchasing a debt note; therefore making you suseptiple to credit risk. Now that Lehman has filed for bankruptcy, what happens to investors that have purchased any of the Lehman Opta ETNs? If these notes are included in the bankruptcy, investors will most likely lose out unless a buyer purchases that unit. There was a good article on indexuniverse.com about this.

Buffet Throws Out The 1st Pitch

2008-09-09T22:13:00.001-04:00

Did anyone else catch Warren Buffet throw out the first pitch tonight at Fenway? His buddy & fellow Red Sox fan Jack Welch caught.

As you may recall, Jordan's furniture, an affiliate of Berkshire Hathaway (BRK.A) last year offered money back to all customers who bought furniture during the Red Sox World Series promotion.

Look a Japanese REIT Fund?

2008-09-09T20:32:00.000-04:00

For investors looking to invest in the Japanese Real Estate Market, Northern Trust just launched the NETS Tokyo Stock Exchange REIT Index Fund (NYSEArca: JRE).

Some funds are benefiting from the turbulent markets

2008-09-09T20:30:00.000-04:00

Volatility funds are doing well.

Janus Fund of Funds

2008-09-09T20:28:00.001-04:00

Janus launched an alternative fund of funds called the Janus Adviser Modular Portfolio Construction Fund (JSMPX). It will be separated into three categories: alpha, alternative & core. The holdings will include Janus Funds, ETFs and derivatives.

Hedge Fund Assets

2008-09-09T20:10:00.000-04:00

The total assets managed by hedge funds is now at $1.7 trillion with JPMorgan holding the top spot with $48.1 billion.

Indonesian ETF

2008-09-08T20:19:00.000-04:00

Van Eck is looking to add another emerging market ETF to their stable. They have filed for an ETF that tracks the Indonesian markets. Their current international lineup consists of Africa (AFK), Gulf States (MES) & Russia (RSX).

Hedge Fund Index Returns

2008-09-07T17:34:00.000-04:00

Allaboutalpha had a good article on the different returns from Hedge Fund Index Providers.

Feds Takeover Fannie & Freedie

2008-09-07T17:21:00.000-04:00

This isn't a huge surprise. The government is taking control of Fannie Mac & Freddie Mae until they can manage themselves. Paulson & FHFA Director James Lockhart have decided to put them into a conservatorship run by the Federal Houseing Finance Agency.

Global Hard Assets ETF

2008-09-05T01:23:00.000-04:00

Looks like Van Eck is the first on the scene with a global hard assets ETF.

Welcome

2008-08-30T13:07:00.000-04:00

Welcome to The Absolute Investor. We will strive to provide you with up to date on market news, new investment products and alternative investing strategies.