Posts Tagged ‘Information Edge’

No end soon to markets’ herd-like moves –

February 21, 2012

No end soon to markets’ herd-like moves –


Why it can pay not to follow fashions –

February 21, 2012

Is this what HFT shops have been up to, Algorithms that anticipate what companies mutual funds and hedge funds will buy next? Has Renaissance been so successful for so long because of this insight?

Once again is the information edge under suspicion? Returns are driven not so much by insight but group think and herd behavior.

Crunching through them reveals what mutual funds and hedge funds have been doing in the previous three months. If we knew in advance what fund managers planned to buy, the information on mutual funds alone would provide annualised returns of 46.6 per cent, according to StarMine, part of Thomson Reuters.

These data are not, of course, available in advance, so front-running the entire mutual fund sector is impossible. And buying what mutual funds have already bought is disastrous: by the time the data is published, copycat investors would have made an annualised loss of almost 10 per cent.

via Why it can pay not to follow fashions –

Impact of insider crackdown spreads –

February 20, 2012

Wow! Look what happens when an asset manager is no longer privy to inside information; he is just as inept as everyone else at investing.

As regulators crack down on inside information, particularly in the US, asset managers say increased scrutiny and prosecutions have made it more difficult to talk to companies and affected equity returns.

A more stringent regulatory approach has succeeded in breaking up inside information rings, such as the one run by Raj Rajaratnam at Galleon hedge funds, last year. But this tougher definition of the practice can have the more far-reaching effect of preventing conversations between asset managers and investee companies.

“The return streams from long/short [equity hedge funds] dropped off after fair disclosure [a regulation introduced by the Securities and Exchange Commission in 2000], which finetuned how management can talk to analysts,” says Ray Nolte, managing partner at Skybridge Capital, a fund of hedge funds manager.

via Impact of insider crackdown spreads –

Side Note — is an informational edge, which is often a thin line between legal and illegal, mistaken for skill? Like the rest of the hedge fund industry, short bias has suffered over the last 10 years. When it should be flourishing with all of the volatility, short bias does a poor job of diversifying a portfolio. Was short bias not a “skill” but the loss of an informational edge with the advent of Regulation SD? Will investors look back in another 20 years and decide that much of the outsized returns pre-2000 the result of various forms of privileged information?

Additional Side Note — Florian Homm, the manager of the Absolute Return Fund. He was shot in the streets of Caracas, Venezuela, ostensibly because he refused to hand over his Rolex. Several months after the gunshot wound, Homm resigned from Absolute Return which was soon discoverd to be a pump and dump scam in conjunction with Hunter World Markets, a broker with which he was affiliated. So, was it a botched robbery or a botched assassination attempt by some pissed off investors? New rule — if a fund manager is shot, redeem immediately.