Alphaclone: The Ultimate Hedge Fund Portfolio Replication Tool ~ market folly

Friday, April 3, 2009

Alphaclone: The Ultimate Hedge Fund Portfolio Replication Tool

If you're going to read one Market Folly article for the rest of the year, then this is the one you'll want to read. Why, might you ask? Well, because we are about to introduce you to a tool that lines up directly with the content you see here at MarketFolly on a daily basis: hedge fund portfolios.

Today, we want to talk about Alphaclone (now 50% off), a web-based software tool developed by Maz Jadallah and Mebane Faber (of the World Beta blog). Quite literally, their tool allows you to create, customize, and replicate hedge fund portfolios. They have 200+ funds listed which can be turned into 15,000+ portfolio clones that are rebalanced quarterly and backtested on a daily basis. And, through a series of posts, we're going to show you what exactly you can do with this powerful tool.

We have been using Alphaclone for the past few weeks and are extremely impressed with vast array of information you can generate in a matter of minutes. You can create clones of individual managers (for instance: Greenlight Capital's portfolio) and can customize the existing portfolio or create your own based on criteria you define. Additionally, you can also create clone groups that create and track a portfolio of multiple managers. For instance, we just went through and for fun cloned a combination portfolio of 'activist' managers in Bill Ackman's Pershing Square, David Einhorn's Greenlight Capital, and Dan Loeb's Third Point. The combinations are endless.

You can also select various strategies and backtest their performance. You can take the top 10 holdings of an individual manager, the 'most popular' holdings from a group of managers, the 'best ideas' of managers, and many, many more options. You can also select a level of hedging (long only or hedged: 25%, 50%, 75%, 100%) to see how the portfolio performs when hedged. You can backtest tons of strategies and I've found myself sitting on Alphaclone for hours at a time creating unique hedge fund portfolios that outperform the S&P500 and various other indices.

Here are some of the highlights of Alphaclone, taken directly from their site:

  • View clone performance annually or across several date spans
  • Compare performance over time against several indexes
  • View current and past holdings for each clone
  • View recent trade activity for each clone
  • Download a spreadsheet for any clone to view monthly return streams
  • Hedge a clone portfolio and view back-tested performance
  • Customize clones by changing the number of holdings and/or rebalance method
  • Select which sectors and/or cap groups to include/exclude in the cloning process
  • Clone your own fund groups

As you can see, there is tons of useful information here. Whether you are a retail investor, money manager, or hedgie yourself, this cloning tool will simplify your investment process. If you like the hedge fund portfolio posts we bring to you on a daily basis, then you are absolutely going to love Alphaclone.

To give you a quick look, we'll show you what Alphaclone pulls up for Warren Buffett's Berkshire Hathaway as an example. This first screenshot below shows the fund overview and highlights current portfolio holdings and sector breakdown.

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Directly below the Berkshire fund overview, we get to some of the good stuff: the clone generator. As you can see below, you have full control of what you wish to clone. You can select the number of top portfolio holdings to include (1,3,5,10, or 20) or you can shift to the "best ideas" tab, which opens up another set of criteria from which you can select the number of holdings. You can also select your rebalance method from holding all the positions equal-weighted, or you can "match the manager" where it will allocate the same percentage of the portfolio to each position as the hedge fund manager has deemed in their own portfolio. Next, you can also set hedging parameters. You can run long only, with a 25% hedge, a 50% hedge, a 75% hedge, or fully 100% hedged.

(click to enlarge)

Directly below the clone generator you can see the performance breakdown of your clone. You can select which indices to compare the clone to, and you can view the performance over a myriad of timeframes. Below the graph you have all kinds of useful information such as turnover, alpha, beta, and the correlation to the index. Additionally, Alphaclone shows you the volatility, sharpe ratio, and max drawdown comparatively as well. If you switch from the "1 year" to the "Annual data" tab, you can see performance data for the clone you've created against the index you've selected, broken down by each year. The historical information and backtesting is very comprehensive. And, you can export all of the info to Microsoft Excel, too.

(click to enlarge)

Lastly, at the very bottom of Berkshire's page, you'll see the current holdings as deemed by the portfolio clone you've selected. You can then see whether Berkshire has added to or reduced a specific position, and you can view their past portfolios as well.

(click to enlarge)

As you can see, there is an absolute wealth of information available, and that's only covering a single fund. Stay tuned, as next week we'll walk you through one of Alphaclone's pre-arranged fund groups: the Tiger Cub clone (a group of hedge funds that Market Folly readers should be very familiar with). This clone of all the ex-Tiger Management hedge funds has beaten the S&P500 by 15.5% annualized since 2000. And, we'll also be debuting a special Market Folly clone where we have hand selected a group of hedge funds for our own unique clone.

Head over and check out Alphaclone. It is easily one of the most useful financial market (and hedge fund specific) tools we've ever come across. And, they're running a special right now where you can get full membership for 50% off. They also have a basic membership setting and a free guest pass that has limited access. Once you get a taste of the possibilities, I guarantee you'll want to upgrade to full access. Full disclosure: I do receive a small commission if you sign-up, but I want to be explicitly clear that this is not some blind sales post; I approached them. I use Alphaclone on a daily basis and I think that fact speaks for itself. It has completely streamlined my hedge fund portfolio tracking/cloning process. If you try it out you'll see that it falls directly in line with what we do here at MF every single day. If you like MarketFolly, then you will love Alphaclone, it's as simple as that.

Update: Our 2nd article on Alphaclone is now up as well. This next article details how you can combine multiple hedge fund managers into one cohesive portfolio. In particular, it focuses on the Tiger Cub hedge fund managers. Enjoy the second post!

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