http://allaboutalpha.com/blog/2007/06/04/so-much-for-double-alpha/ A finance blog about hedge funds, portable alpha and alternative investing. Thu, 09 Feb 2012 19:03:08 +0000 http://wordpress.org/?v=abc hourly 1 http://allaboutalpha.com/blog/2007/06/04/so-much-for-double-alpha/comment-page-1/#comment-96219 allaboutalpha.com: AllAboutAlpha.com Tue, 08 Apr 2008 00:51:51 +0000 http://allaboutalpha.com/blog/2007/06/04/so-much-for-double-alpha/#comment-96219 [...] This was a concern raised last June in this MarketWatch article (see related posting, “So Much for Double Alpha”): “Some equity hedge funds have quit short selling stocks because the strategy is riskier in a rising market and has become too crowded to be profitable. Instead, more managers are shorting exchange-traded funds. That’s a problem, according to some experts, who argue that using ETFs to hedge equity portfolios is a poor substitute for the real thing.” “ETFs are also indexes, and so, by definition, they provide so-called beta — that is, the return generated by the market. Hedge-fund managers are in the business of creating alpha and outpacing the market benchmarks. So if they build short positions with ETFs, that part of their strategy will track whatever portion of the market they’re betting against. That could end up looking more like beta than alpha.” [...] [...] This was a concern raised last June in this MarketWatch article (see related posting, “So Much for Double Alpha”): “Some equity hedge funds have quit short selling stocks because the strategy is riskier in a rising market and has become too crowded to be profitable. Instead, more managers are shorting exchange-traded funds. That’s a problem, according to some experts, who argue that using ETFs to hedge equity portfolios is a poor substitute for the real thing.” “ETFs are also indexes, and so, by definition, they provide so-called beta — that is, the return generated by the market. Hedge-fund managers are in the business of creating alpha and outpacing the market benchmarks. So if they build short positions with ETFs, that part of their strategy will track whatever portion of the market they’re betting against. That could end up looking more like beta than alpha.” [...]

]]> http://allaboutalpha.com/blog/2007/06/04/so-much-for-double-alpha/comment-page-1/#comment-14780 The Aleph Blog » Ten Important, but not Urgent Articles to Ponder Tue, 17 Jul 2007 08:32:01 +0000 http://allaboutalpha.com/blog/2007/06/04/so-much-for-double-alpha/#comment-14780 [...] I work for a hedge fund, but I am dubious of the concept of double alpha.  It sounds nice in theory: make money off of your shorts and longs without taking overall market risk.  As I am fond of saying, shorting is not the opposite of being long, it is the opposite of being leveraged long, because in both cases, you no longer have discretionary control over your trade.  Typically, hedge fund investors are only good at generating alpha on the long side.  The short side, particularly with the crowding that is going on there is much tougher to make money at.  If I had my own hedge fund, I would short baskets against my long position, and occasionally companies that I knew had accounting problems that weren’t crowded shorts already (increasingly rare). [...] [...] I work for a hedge fund, but I am dubious of the concept of double alpha.  It sounds nice in theory: make money off of your shorts and longs without taking overall market risk.  As I am fond of saying, shorting is not the opposite of being long, it is the opposite of being leveraged long, because in both cases, you no longer have discretionary control over your trade.  Typically, hedge fund investors are only good at generating alpha on the long side.  The short side, particularly with the crowding that is going on there is much tougher to make money at.  If I had my own hedge fund, I would short baskets against my long position, and occasionally companies that I knew had accounting problems that weren’t crowded shorts already (increasingly rare). [...]

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