Presentation
Active Factor Investing: Hedge Funds vs. the Rest of Us
2015 Financial Management Association Annual Meeting
(2015)
Abstract
We argue that only hedge funds whose returns are driven by beta management of exposures to latent risk factors could be successfully replicated. We develop a methodology for creating a portfolio of ETFs that replicates risk factor exposures taken by top beta active cloneable hedge funds. The strategy could be interpreted as cloning beta exposures of the best beta active hedge funds, and it delivers outstanding long-term risk-adjusted performance. The ETF portfolio only requires annual rebalancing, and is constructed with a transparent algorithmic approach, which conforms to a definition of a smart beta strategy.
Keywords
- hedge funds,
- risk factor exposures,
- factor investing,
- return replication,
- performance prediction,
- beta active management
Disciplines
Publication Date
October, 2015
Location
Orlando, FL
Citation Information
Jun Duanmu, Yongjia Li and Alexey Malakhov. "Active Factor Investing: Hedge Funds vs. the Rest of Us" 2015 Financial Management Association Annual Meeting (2015) Available at: http://works.bepress.com/yongjia-li/3/