Market Folly Custom Portfolio Rebalanced & August 2009 Performance ~ market folly

Thursday, September 3, 2009

Market Folly Custom Portfolio Rebalanced & August 2009 Performance

We're posting up two quick updates regarding our Market Folly custom portfolio. To those of you newer to the portfolio, it is simply a clone designed to mimic hedge fund holdings created with the help of a great replication tool, Alphaclone. Through hours of clone creation and experimentation, we've used our expertise in tracking hedge fund SEC filings to determine an ideal mix of hedge funds and strategies to create a winning portfolio. We wanted to post up an update to let everyone know that the latest rebalance of our portfolio has just occurred. So right now is the ideal time to head over to Alphaclone to see which positions our portfolio is invested in since everything is fresh. And, you can invest right alongside our portfolio that is seeing 20.5% annualized returns. Our portfolio rebalances four times a year (once each quarter after the new SEC filings come out).

Secondly, since we're posting monthly performance updates of our clone for complete transparency, we wanted to update our August 2009 performance figures.

August 2009

MF clone: -1.5%
S&P 500: +3.6%

Year-to-date 2009

MF clone: +9%
S&P 500: +12.4%

Obviously we've hit some rough water lately as our 50% portfolio hedge has weighed on the clone's overall performance. We put the hedge in place due to the fact that we think we aren't out of the woods yet and that there is a possibility of further downside to come. Additionally, we wanted to run a truly hedged portfolio like a hedge fund in the 'old school' sense of the definition. While the portfolio is underperforming in the near-term, we think this is the right decision and we will be quick to point to the clone's long term outperformance.

(click to enlarge)

After all, we created the portfolio with the goal of generating solid returns over the long haul. Since 2000, our clone has seen a total return of 515% versus the S&P return of -18.4%. The outperformance there is uncanny. Not to mention, the MF portfolio is seeing 20.5% annualized returns compared to -2.1% annualized returns for the S&P. Again, no contest. Our Sharpe Ratio comes in at 0.8 while the S&P's comes in at -0.4. Admittedly, our clone's performance comes with more volatility than the S&P due to it's concentrated nature. However, with Alpha of 16.8, we aren't going to complain.

For more background on our Market Folly custom portfolio, check out our introduction in part 1 here and part 2 here. Those posts go on to explain the hedge funds we've selected for our clone, the strategy used, and the performance it has been able to generate. Now head over to Alphaclone to see our Market Folly portfolio's latest holdings after the rebalance and to check out all the performance metrics and data.

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