RT Journal Article
SR Electronic
T1 When Does Active Management Add Value?
JF The Journal of Index Investing
FD Institutional Investor Journals
SP 73
OP 86
DO 10.3905/jii.2014.5.3.073
VO 5
IS 3
A1 Benjamin McMillan
YR 2014
UL https://pm-research.com/content/5/3/73.abstract
AB Hedge fund managers have long touted their ability to add alpha, particularly in times of market stress. As the rapid growth of the exchange-traded products (ETPs) landscape has given rise to more liquid alternative betas, investors have started to take a closer look at the alpha hedge funds provide. We study a universe of long/short equity funds (with a focus on the North American markets) with the objective of shedding some light on how much alpha they deliver, as a group, as well as when that alpha is present. We find evidence that long/short equity managers, collectively, tend to underperform a liquid dynamic portfolio of ETPs designed to clone these managers’ collective performance. This underperformance tends to occur during periods of market stress, suggesting that hedge fund managers’ value-added, as a group, lies in their ability to make the right factor bets over longer time horizons relative to shorter time horizons.TOPICS: Real assets/alternative investments/private equity, exchange-traded funds and applications, performance measurement