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Hedge Fund Holdings Review_Q32013_CLIENT (1)

Hedge Fund Holdings Review_Q32013_CLIENT (1)

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Published by tabbforum
For decades, investment professionals have considered hedge fund managers the “smart money” on Wall Street. Over the long term, hedge funds have tended to outperform traditional benchmarks on a risk-adjusted basis, so their reputation seems justified. Still, until recently, assessment of hedge fund trading in specific sectors and securities has been limited to a few select managers at a time, and less has been done to gauge the growing industry’s direction as a whole.
For decades, investment professionals have considered hedge fund managers the “smart money” on Wall Street. Over the long term, hedge funds have tended to outperform traditional benchmarks on a risk-adjusted basis, so their reputation seems justified. Still, until recently, assessment of hedge fund trading in specific sectors and securities has been limited to a few select managers at a time, and less has been done to gauge the growing industry’s direction as a whole.

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Published by: tabbforum on Mar 03, 2014
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04/11/2014

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A study of hedge fund holdings and drivers of return
Hedge Fund Holdings Review
 
Q3 2013
By Stan Altshuller and Yuanjie Zhang
>
January 2014
Illustration by Mitch Blunt 
 
2 > Hedge Fund Holdings Review: Q3 2013
January 2014
F
For decades, investment professionals have con-sidered hedge fund managers the “smart money” on Wall Street. Over the long term, hedge funds have tended to outperform traditional benchmarks on a risk-adjusted basis, so their reputation seems  justified. Still, until recently, assessment of hedge fund trading in specific sectors and securities has been limited to a few select managers at a time, and less has been done to gauge the growing in-dustry’s direction as a whole. Recent advances in data collection and analytics coupled with deeper global public disclosure re-quirements allow for more robust study and close monitoring of hedge fund managers’ positioning. In this publication, we track developing trends in hedge fund equity holdings. In addition, we analyze the most popular and highest-concentrated names in hedge funds and relate this to out-performance of the broader market as well as study the biggest drivers of returns for the industry.
Background on Data
Governments around the globe require institu-tional and individual investors to file and disclose certain holding information for varying purposes. In the U.S., the SEC requires financial institutions to file Forms 13F, 13G and 13D. The Japanese 5% Shareholders filing requirement is similar to the 13G filing. Like American 10k, 20F and proxy filings, British Registers requirements reveal ownership positions. British insider filings include Forms 3, 4, 5 and 144, and the U.K.’s Regulatory News Service (RNS) publishes insider holding information. Similar disclosure rules also exist in other major financial markets and provide public holdings information. Novus has aggregated, normalized and analyzed data from all of the aforementioned sources and many more to build the Novus Global Holding Database. Furthermore, we have selected a highly repre-sentative group of hedge funds sourced from the Novus Database and constructed the Hedge Fund Portfolio (HFP), a non-investable portfolio avail-able to clients for closer analysis via the Novus Platform. This portfolio is the basis for our study. The indices we discuss later in the study are sub-sets of HFP and are also non-investable. For the purposes of this study, we limited our analysis to just the public long global equity positions disclosed by managers in HFP as well as those that most drove performance for the third quarter of 2013. The reasoning for trades that we outline here is conjecture and based exclusively on public information.
Security:
 An investable instru-ment from a single issuer. This may also be referred to as a “name,” “stock” or “company.” A security is associated with a return that is independent of managers’ investment.
Position:
 A capital allocation by a manager to a security. Each separate allocation is a unique position.
Alpha:
 The excess return of a fund, strategy index or invest-ment relative to the return of the benchmark over a certain period.
Category:
A criterion for classification. Examples include country, sector or market cap.
Exposure:
The sum of all mar-ket values in a specific category. Exposure can be expressed as a dollar amount or as a percent-age of total portfolio value.
Institution:
 A management company with one or more long positions. Also referred to as a “manager.”
Participation:
 The number of institutions disclosing long po-sitions in a specific security.
Trade:
 The expression of an investment thesis through one or more positions.
Hedge fund interest:
The number of shares of all dis-closed long positions from the selected hedge fund group as percent of shares outstanding for a specific security.
Reported asset value (RAV):
The sum of market value of all disclosed long positions for a certain manager.
TERMS
 
 3 > Hedge Fund Holdings Review: Q3 2013
January 2014
Portfolio (HFP):
The portfolio contained 11,230 securities and 99,695 positions across 782 managers and spanned 65 countries as of 9/30/2013. The total reported asset value (RAV) of the portfolio was $1,515B, up $99B from last quarter. Hedge fund managers have increased their total long value, which currently measures close to pre-crisis levels. The Fed’s ongoing quantitative easing program and the general economic recovery boosted U.S. equity markets and contributed positively to hedge fund performance on the long side. Although hedge funds attracted large capital inflows since the mar-ket bottomed out during the crisis (as evidenced by the increase in AUM adjusted for performance), long exposure has stayed far below the pre-crisis level. We observe a slight decline of long exposure since 2009, as hedge fund managers are cautious about the potential impact of Fed tapering exerting pressure on global asset prices, and are skittish about taking on more directional risk.
1800160014001200100080060040020018016014012010080604020Exposure (%)Value ($B)3/04 3/05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/139/04 9/05 9/06 9/07 9/08 9/09 9/10 9/11 9/12 9/13ExposureValue
Note: Long exposure is the total reported asset value as a percentage of total hedge fund AUM. (AUM Source: Hedge Fund Research (HFR))
 As of 9/30/2013Change from 7/01/2013
Managers782+3Countries65+1Securities11,230+272Positions99,695+2,448Total Market Value$1,515B+99 B
PORTFOLIO
(HFP)
TOTAL LONG VALUE VS. LONG EXPOSURE

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