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AlphaBetaWorks
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Investment Risk Management, Skill Evaluation, and Predictive Performance Analytics
Investment Risk Management, Skill Evaluation, and Predictive Performance Analytics

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An illustration of the futility of manager selection using nominal returns and a demonstration of an effective alternative:
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The most crowded exposures of U.S. smart beta equity ETFs are short Size (overweight smaller companies) and short (underweight) Technology.
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The widespread obsession with popular hedge fund holdings, which are responsible for just 30% of #HedgeFund crowding, is misguided:
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The influence of dumb beta factors on international smart beta tracking error.
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Dumb factors are responsible for over 60% of tracking error for most U.S. equity smart beta ETFs:
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Though fully replicating fundamental indexing with factor tilts is impossible, factor tilts to replicate 96% of the absolute variance of this #SmartBeta strategy over the past 10 years.
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A single factor (Market) has accounted for more hedge fund crowding risk than all the stock-specific bets combined. The other top factor bets have been long Health Care, short Utilities, and short Real Estate:
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Contrary to popular wisdom, 2016 was a satisfactory year for the top institutional stock pickers. They generated approximately 2% from security selection. Regrettably, poor risk management and unintended factor exposures obscured the skills of some strong firms:
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The widespread obsession with popular hedge fund holdings, which are responsible for just 30% of #HedgeFund crowding, is misguided:
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