Free 30 Day Alphaclone Trial for Market Folly Readers

Just wanted to remind everyone that Market Folly readers have an exclusive extended free 30 day trial over at Alphaclone if you're interested. It's the best hedge fund portfolio replicator out there and we use it for all of our 13F filing updates and backtesting various strategies. The most unique feature is that you can assemble multiple hedge fund managers into one cohesive portfolio to find their most popular positions. AC also just implemented a new feature where you can receive alerts when a specific hedge fund files a 13G or 13D so that way you can stay up to date on the latest movements. We've said numerous times in the past that if you enjoy Market Folly, you'll find Alphaclone beyond resourceful for tracking the best investment managers out there. We're not sure how long this extended freebie will last, so definitely take advantage of Alphaclone's free trial.

Alphaclone: Free 30 Day Trial for Hedge Fund Portfolio Replication & Backtesting

We've got exciting news that Alphaclone is now giving away a free 30 day trial for those interested. We use Alphaclone for all of our hedge fund portfolio tracking & replicating and highly recommend checking it out.

If you enjoy Market Folly and want to know what the top hedge funds are buying and selling then this is the hedge fund replicator for you. Probably the best feature of Alphaclone is that you can backtest various hedge fund strategies and combine managers to create your own fund of funds. Check it out for yourself and take advantage of the Alphaclone free trial here.

Market Folly Portfolio Rebalanced, New Positions

Just wanted to remind everyone that Alphaclone has rebalanced all the hedge fund portfolios in their database to reflect the latest changes per the new 13F filings. Head over there to see what positions our Market Folly portfolio now owns. Additionally, you can see what all the individual top hedge fund managers have been buying and selling. It's by far the best hedge fund replication tool we've ever used as you can backtest strategies and find the most popular holdings with ease.

Market Folly Custom Portfolio: January Performance

As always, we're back with our monthly transparent performance update on the Market Folly custom portfolio we created with Alphaclone. Our goal is to replicate hedge fund portfolios by combining some of their holdings into a cohesive portfolio.

January 2010
MF: -3.4%
S&P: -3.6%

December 2009
MF: +4.0%
S&P: +1.9%


Backtested performance figures:

If you had been mimicking the holdings of these top hedge funds since inception in January of 2000, here's what your theoretical returns would have looked like:

Total Return
MF: +862.1%
S&P: -9.6%

Annualized
MF: +24.9%
S&P: -1.0%




Alphaclone currently has a free 14-day trial so take advantage of it to see what positions the portfolio currently holds and to replicate hedge funds on your own. Keep in mind that our portfolio is set to rebalance here in a few weeks too. If you're unfamiliar with the premise of the portfolio, check out our introduction.

Market Folly Portfolio: December & 2009 Full Year Performance

Here are the 2009 results from our Market Folly custom portfolio created with Alphaclone. The portfolio invests in equities held by specific hedge funds as we seek to replicate their portfolios. The overall goal is to generate alpha and outperformance over the long-term by utilizing their stockpicking skills.

December 2009
MF: +4.0%
S&P 500: +1.9%

Full Year 2009
MF: +13.8%
S&P 500: +26.5%

Total Return (Since 2000)
MF: +885.5%
S&P 500: -8.2%

Annualized Return (Since 2000)
MF: +25.7%
S&P 500: -0.9%




Over the life of the portfolio, we've seen Alpha of 22.7, Beta of 0.2, and a 0.2 correlation to the Index. The 2009 performance was disappointing and as we've pointed out before, a 50% portfolio hedge severely drags on performance when the market rallies 60+% from the lows in one year. To demonstrate just how much the hedge hurt the portfolio, we'll pull up the long-only version of the portfolio: It returned 28.6% for 2009, outperforming the S&P by 2%. We created the portfolio with Alphaclone and highly recommend checking it out as you can replicate tons of hedge fund portfolios.

While the hedge put a damper on performance this year, it has also shielded from massive drawdowns in previous bear markets and has helped generate long-term outperformance. Keep in mind that you can run long-only versions or hedged versions, it's completely up to you. We just prefer to run a hedged book in order to protect from drawdowns.

Take advantage of the free 14-day trial to Alphaclone to see what stocks our original MF portfolio is currently invested in.

Market Folly Custom Portfolio: November 2009 Performance

If you're unfamiliar with our portfolio, check out our introduction here. Today we're back with the latest performance metrics from our Market Folly custom 'hedgefundesque' portfolio created with Alphaclone:

November 2009
MF: -2.2%
S&P 500: +6.0%

YTD 2009
MF: +9.4%
S&P 500: +24.1%

Since Inception (1/03/00)
Total Return
MF: +848.6%
S&P 500: -10.0%

Annualized
MF: +25.5%
S&P 500: -1.1%

(click to enlarge)

The clone had a horrible month comparatively speaking. Not to mention, the hedge continues to drag on portfolio performance for the year as the never-ending rally continues. The long-only version of our portfolio is +25.2% year-to-date, compared to the hedged version which is +9.4%. So, you can see the vast majority of the underperformance is due to the hedge this year. In our mind, it has always been imperative to first: protect from losses, and second: to outperform over the long-term. The clone has definitely succeeded in those regards, but we're obviously disappointed with this year's performance.

Needless to say, a rally of over 60% from the lows in one year is quite abusive to our hedge. When you get a rare and vicious rally like that, the hedge will always drag you down. We of course will continue to run our strategy as designed because its long term outperformance speaks for itself. And after all, we're in this for the 3-year, 5-year, and inception metrics. (Keep in mind that you can also run a long-only version of the portfolio).

We're providing monthly performance updates on the Market Folly clone in the interest of full transparency. After all, that word has taken centerstage in the industry as of late. While we aren't focused on month-to-month gyrations, many readers like to see how it is faring near-term and we're happy to oblige. As always, head over to Alphaclone to see our portfolio in action and to see what positions it is currently invested in. We're proud to be ranked #1 on Alphaclone's leaderboard despite this year's poor showing. Create your own hedge fund portfolios over there and let us know how your results look.

Market Folly Custom Portfolio: Rebalanced, New Positions

With the onset of the third quarter 13F filings upon us, our Market Folly custom portfolio has just been rebalanced with new positions. We rebalance our holdings four times a year (once each quarter) to coincide with the latest hedge fund SEC filings. Since 2000, our portfolio has a total return of 865.6% and an annualized return of 25.7%. These numbers reflect the most recent performance as we just looked at them this morning. To see the latest positions our portfolio is investing in, head over to Alphaclone and then pull up the Market Folly portfolio from the list of 'Clones of Fund Groups'.

Our hedge fund-esque portfolio invests in various stocks held by a group of hedge funds we've hand selected. Over time, we've used our hedge fund tracking expertise to identify funds that outperform the markets and are easily 'cloned' due to their equity strategy and long-term investment focus. By focusing on hedge funds that typically employ long/short equity strategies, we ensure that we can see the majority of their long portfolio in the SEC filings to that we are replicating their portfolio efficiently. While we cannot see the short positions in their portfolio, we run our clone with a 50% hedge (short SPY) in order to run a hedged investment vehicle. We created it all with ease by using Alphaclone, truly the best hedge fund replication tool we've come across.

Below is a teaser shot of the 9 positions our portfolio currently holds. Each row represents one stock and by looking at the share price you can start guessing as to what position each is. The portfolio has five brand new positions this quarter and retains four positions from the previous quarter. Ignore the column on the far right regarding the quarter over quarter change in shares held, as we instead equal-weight all of our holdings. Let the guessing games begin:



As referenced earlier, the portfolio performance has been amazing. To learn more about our portfolio, head over to our introductory post. The Market Folly Custom portfolio is ranked #1 on Alphaclone's leaderboard as the top performing portfolio. It has a Sharpe Ratio of 1.1, beta of 0.2 and a correlation to the index of 0.2. As always, we'll continue to provide performance updates on how our portfolio is faring every single month. For those of you trying to replicate our portfolio on Alphaclone, keep in mind that we are using a market cap screen that omits companies with a market cap of greater than $50 billion from our clone. Now that the replicator just rebalanced, click here to see the new positions our portfolio holds. Upon signing up for Alphaclone you can see our positions and invest right alongside our portfolio to generate these outstanding returns for your own account. We cannot stress enough that it is the best hedge fund replication tool out there.

Hedge Fund Baupost Group: New Enzon Pharmaceutical Stake (ENZN)

Seth Klarman's well known hedge fund Baupost Group recently filed two separate 13G's with the SEC in which they updated positions. Firstly, we see that Baupost Group has initiated a brand new position. In a 13G filed due to activity on October 31st, 2009, we see that they have disclosed a 13.7% ownership stake in Enzon Pharmaceuticals (ENZN) with 6,228,130 shares. When we covered Baupost's portfolio via their 13F filing that summarized their positions as of June 30th, Enzon was not present. As such, they have started a new position in this name over the past four months. Interestingly enough, Enzon also recently announced they have agreed to sell their specialty pharma unit for $327 million.

Secondly, we also see that Baupost has disclosed a 14.72% ownership stake in Viastat (VSAT) with 4,652,631 shares. The filing was made due to activity on October 31st, 2009 and they have increased their position by over 278% as they previously held 1,229,057 shares back on June 30th of this year. So, in the past four months or so, Klarman has added 3,423,574 additional shares. Stay tuned next week as we'll be covering the new wave of portfolio disclosures hedge funds will be filing with the SEC (form 13F). This will be our first in-depth look at portfolios since June 30th, and we'll get a better feel as to what these funds have been up to. In the mean time, check out our coverage of Baupost's recent activity where we detailed their other portfolio moves as well as their sale of PDL Biopharma.

We track Baupost Group for their 20% annual compounded return and solid investing methodologies. They are one of the select few funds we have included in our Market Folly custom portfolio that is seeing over 20% annualized returns by combining 3 hedge fund portfolios into a cohesive whole. Head over to Alphaclone to see the hedge fund portfolio replication in action and to see which positions our portfolio is currently invested in (and will soon re-balance to). And if you want to learn how to invest like Seth Klarman, then we'd highly recommend picking up his very hard to find book, Margin of Safety where he provides a "how-to" on risk averse value investing.

Taken from Google Finance, "Enzon Pharmaceuticals, Inc. (Enzon) is a biopharmaceutical company focused on developing, manufacturing and commercializing of medicines for patients with cancer and other life-threatening conditions. The Company has a portfolio of four marketed products: Oncaspar, DepoCyt, Abelcet and Adagen. Enzon’s drug development programs utilize several approaches, including its PEGylation technology platform and the Locked Nucleic Acid (LNA) technology. The PEGylation technology was used to develop two of the Company’s products, Oncaspar and Adagen, and has created a royalty revenue stream from licensing partnerships for other products developed using the technology. The Company also engages in contract manufacturing for several pharmaceutical companies. The Company operates in three segments: Products, Royalties and Contract Manufacturing."

"ViaSat, Inc. is a producer of satellite and other wireless communications and networking systems to government and commercial customers. The Company is organized principally in three segments: government systems, commercial networks and satellite services. The Company’s government systems business is focused on network-centric government communications, where it develops and produces systems and specialized equipment for government customers for tactical data links, unmanned aerial vehicles, secure networking, signal processing and generation, and satellite communications applications. In its commercial networks segment, the Company develops and produces systems and products for consumer, enterprise and mobile (aviation and maritime) broadband customers. Its satellite services segment provides managed network satellite services to enterprise and mobile broadband customers."

Market Folly Custom Portfolio Ranked #1 On Alphaclone Leaderboard

We have some fantastic news to report in that our very own Market Folly custom 'hedgefundesque' portfolio is ranked #1 on Alphaclone's leaderboard for all fund strategies! Upon checking out their leaderboard, we discovered that if you select the 'max' date-range and search for 50% hedged strategies, our clone is ranked #1 out of all the various funds they track with a total return of 878.3%, an annualized return of 26.1%, and Alpha of 23.4 all since January of 2000. This of course is the portfolio we post updates on each month. The portfolio takes positions from 3 handpicked hedge funds we've selected and combines them into a cohesive hedgefundesque clone by taking the top 3 holdings of each fund, equal weighting them, and then employing a 50% market hedge.

What's even more impressive to us is the fact that not only is our MF clone ranked #1, we have 5+ more iterations of our clone ranked in the top 25 of Alphaclone's leaderboard. These other MF clones simply take our portfolio and use different strategies such as 'top 2 holdings,' 'top 5 best ideas,' etc. If you have an Alphaclone account, head over there and click on 'leaderboard' on the top and play around to see what funds have the best returns in the cloning universe. Our clones make an appearance in almost every category you select and we're quite proud of this feat. If you don't have an Alphaclone account, take advantage of their 14-day free trial to check our portfolio out and to see the leaderboard.

Here's a screenshot we took of the current leaderboard:

(click to enlarge)

And as always, here's our latest performance update from the month prior:

October 2009
Market Folly clone: -3.0%
S&P 500: -1.9%

YTD 2009
MF: +11.9%
S&P 500: +17.0%

Total return since January 2000
MF: +878.3%
S&P 500: -15.1%

Annualized return
MF: +26.1%
S&P 500: -1.6%

And here is a screenshot of the current performance overview:

(click to enlarge)

Our Market Folly 'hedgefundesque' portfolio is now up 11.9% year-to-date versus 17% for the S&P500, continuing its role as a hedged instrument that captures some, but not all of major upward moves and protects from downside risk. Head over to Alphaclone to see the positions our portfolio is currently holding and make note that here in the next 2 weeks our clone will rebalance with new holdings to reflect the latest 13F filings.

If you're unfamiliar with the MF portfolio, check out our introductory post here. We'll continue to post up monthly performance an ongoing basis. Definitely stay tuned in the next two weeks when our portfolio rebalances with new positions. Not to mention, we'll be *updating* our fund to better position it going forward in an effort to select fund managers we think will outperform over the long-term. Stay tuned to see what up and coming hedge fund we add into the mix.

What Hedge Funds Are Buying & Selling: Trend Monitor Report

Embedded below is an interesting report from Bank of America Merrill Lynch regarding hedge fund position adjustments and performance for the prior month. The report touches on the fact that many funds have been buying S&P and NDX futures and have covered shorts in the Russell 2000. They also note that many funds are in the now crowded gold trade while some also bought platinum. Other moves in precious metals include selling silver and adding to shorts in copper. On the energy front, hedge funds were selling crude oil and reducing longs in heating oil. In the forex markets, hedge funds have been steadily pressing their short on the US Dollar and the market seems to have held on to a crowded long Japanese Yen position.

The report also delves into interest rate trades which was of particular interest to us given the large amount of funds we've tracked that have positions on in this regard. The report notes that there are very deep short positions in the 10 Year Treasuries & 30 Year Treasuries but they were starting to modestly cover. They also apparently reduced some of their long 2 Year Treasury positions. These latest moves seem to indicate that hedge funds as a whole are scaling back a bit from the curve steepener trade. You'll remember that we've noted hedge fund legend Julian Robertson has put on a curve cap play which bets on rising interest rates on the long-term bonds. On the other side of this argument, we've also seen bond connoisseur Bill Gross of PIMCO wager on deflation by buying long-term treasuries recently. This debate will surely wage on throughout the end of this year and well into next year, so we'll continue to track what side of the trade prominent hedge funds are taking.

Overall, a very intriguing report as it examines the hedge fund landscape as a collective whole as it pertains to portfolio adjustments. Here is the hedge fund trend monitor report from Bank of America Merrill Lynch embedded below:



Alternatively, you can download the .PDF here.

For more on current hedge fund strategies, we've covered a wide variety of reports from Goldman Sachs that we highly recommend checking out. They recently issued their 'Best Long & Short Strategies' in the current markets where they examine some of the trades hedge fund might be putting on. Additionally, they also have a hedge fund trend monitor of their own, similar to the one above. Lastly, they've also released a report on 'Where To Invest Now'. All are great additional reading on the topic of current hedge fund strategies. We'll continue our hedge fund portfolio tracking as always and will keep you updated as to what the smart money is up to.

Market Folly Custom Portfolio: September Performance Update

It's that time again as we're back to bring the latest monthly numbers in from our Market Folly custom hedgefundesque portfolio created with Alphaclone. We've taken equity holdings from three prominent hedge funds in a unique strategy and have combined them with a 50% market hedge in order to provide downside protection. If you're unfamiliar with our MF portfolio, check out this post. To see what positions our clone invests in, check out the 14 day free trial to Alphaclone. Here are the latest numbers:

September:

MF: +2.1%
S&P: +3.7%

YTD:

MF: +11.4%
S&P: +19.3%

As you can see, our clone continues to lag the market, mainly due to the 50% market hedge we have employed. We also ran the performance numbers for our fund as if it was operating long-only and that iteration is outperforming the index. That's the great thing about Alphaclone is that you can pick and choose various strategies and degrees of hedging until you find the optimal combination. We selected the 50% hedge in order to limit drawdowns and to operate as a truly hedged investment vehicle.

After inspecting our longs, almost all of them are holding up just fine. So, as any truly hedged instrument is designed, we are capturing some, but not all, of the upward move. And, in downward trends, we severely reduce drawdowns. We'll be quick to point out that despite lagging the index for 2009, our portfolio didn't have much to do in the form of recouping losses. Case in point: The S&P was down 37% for 2008 while our portfolio was only down 5.6% for last year. So, we have already moved onwards and upwards while the S&P is still recovering massive losses from last year. Not to mention, our clone has only underperformed the market once (2005) ever since its inception back in 2000.

We need to reiterate that we are and always have been focused on the long-term. Everyone is so focused on month-to-month performance in the industry these days, and we're looking to distance ourselves from that in an attempt to generate alpha over a multi-year timeframe. And, so far, the clone has done just that. Since inception in 2000, the MF portfolio has a total return of 533% compared to -13.4% for the S&P. This equals annualized returns of 20.8% for our portfolio compared to -1.5% annualized for the index. Additionally, this was achieved with alpha of 17.1 and a Sharpe Ratio of 0.8. There's your outperformance right there. However, we must highlight that our clone does experience higher volatility than the S&P, but at the same time has suffered far less drawdown. We're merely posting up monthly numbers to give readers updates on our progress and to provide transparency.

Here is the current performance chart:



Additionally, for the first time we've included an Excel file that details our performance breakdown by various metrics. You can view the file on Google Docs here and we've embedded it below as well:




As always, head over to Alphaclone for a 14 day free trial to find out what positions our custom MF portfolio holds. Over the long-term, our hedged clone is definitely generating solid alpha and outperforming the index handily. We'll continue to provide monthly updates so stay tuned.

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.

Alphaclone Hedge Fund Portfolios Rebalancing This Evening

Wanted to let everyone know that today Alphaclone is rebalancing all of the hedge fund clone portfolios to reflect the newest 13F filings that are out. This rebalance also affects our Market Folly custom portfolio. So, to see what new positions the current iteration of our clone holds, make sure to check Alphaclone this evening once the rebalance has taken place.

Also, we have exciting news in that we have just created a new version of our Market Folly custom portfolio and we'll be announcing the changes shortly. We have decided to replace/add hedge funds into the mix as we have inserted funds that are tracked more accurately because they are more focused on equities. Additionally, we are focusing now on a blend of old and new. It will include older, proven managers with some slightly newer managers that we believe are poised to succeed.

In essence, we view our custom hedge fund clone portfolio as if we were running a fund of funds, just without the absurd extra layer of fees. We have used our background and knowledge on various hedge funds and their strategies to select managers who have a history of solid stockpicking and who we feel can outperform over the long-term. Additionally, our familiarity with the caveats surrounding 13F filings has allowed us to select funds that are an ideal match for replicating a portfolio via SEC filings.

Check out Alphaclone this evening to see the rebalanced portfolios and check back here as we will soon unveil the newest iteration of our Market Folly Custom Portfolio!

Market Folly Custom Portfolio Performance: July 2009

As promised, we'll now be giving monthly performance updates from our Market Folly custom portfolio created with Alphaclone. For a background on our hedge fund replicator portfolio, check out the introduction to our portfolio: Part 1 & Part2. Simply put, we've cloned a portfolio based on hedge fund holdings and the performance has exceeded our expectations over the long-term. Let's get right to it:

July 2009 Performance

MF clone: +1.6%
S&P500: +7.6%

Obviously, the 50% hedge our portfolio employs has hurt us this year. Our clone is up 10.5% year to date versus S&P being up 12.6%. However, we will be quick to point out that our hedge fund portfolio is now seeing huge annualized returns with an Alpha > 15 and a Sharpe Ratio approaching 1.0. Since inception, our hedge fund portfolio has seen an over 500% total return compared to an abysmal return for the market in general. Admittedly though, the main drawback about our clone is that it is more volatile than the S&P 500. However, if you ride it through and simply rebalance 4 times a year, the returns are phenomenal. And, we created this portfolio with the sole goal of outperforming over the long-term.

Since this is our first in-depth post purely on performance, we also want to play catch up a little bit and post up the previous monthly performances thus far for 2009. Here is our breakdown:

January: MF clone +5.9% / S&P -8.4%
February: MF clone +1.2% / S&P -10.6%
March: MF clone +1.3% / S&P +8.8%
April: MF clone +2.4% / S&P +9.6%
May: MF clone +1.2% / S&P +5.6%
June: MF clone +-3.1% / S&P +0.1%
July: MF clone +1.6% / S&P +7.6%


Back in June, we posted up a portfolio update and noted that Alphaclone has included our MF portfolio on their list of available clones. As such, anyone using the cloning service can check out our portfolio. To see what positions our Market Folly clone holds, head over to Alphaclone. Be sure to check out their 14 day free trial to the full membership package where you can clone unlimited hedge fund portfolios & groups.

MarketFolly Custom Portfolio Update: 27.9% Annualized Returns

Now that our MarketFolly portfolio is in full flight, we're going to begin tracking its performance on a monthly basis so readers can see how it stacks up both against the indices and other hedge funds. Firstly, for those of you unaware, we've cloned a portfolio with Alphaclone that invests in the positions of three hedge funds assembled into a collective unit: Seth Klarman's Baupost Group, Eric Mindich's Eton Park Capital, and Chris Shumway's Shumway Capital Parters. Simply put, we've created our own custom hedge fund portfolio clone. For more background on all of this, you can view our portfolio introduction here, as well as an introduction to Alphaclone here as well.

We are very proud to say that our MarketFolly custom portfolio has been included into Alphaclone's funds list and you can easily pull up our clone and invest alongside it. Why is our portfolio worth checking out? We have one answer for you: 27.9% annualized returns.

Performance

Yes, you read that correctly. Our portfolio has seen absolutely fantastic results over an expanded timeline. Our clone has been backtested from January 3rd, 2000 and has returned 27.9% on an annualized basis in our 'top 3 holdings' strategy with a 50% hedge. Our MarketFolly portfolio has seen a total return of 918.4% compared to an S&P500 total return of -25.2% over the course of the past 9 years.

The MF clone has an Alpha of 25.8, a Beta of 0.3, a Sharpe Ratio of 1.2, and a correlation to the index of 0.2. We cannot stress enough how pleased we are with this performance. Thus far in 2009, the MF clone is up 8.2% compared the S&P500 being up 3.1%, so you also have outperformance by this metric as well. Our portfolio generates alpha, is not highly correlated to the markets, and has solid annualized returns. What more could you ask for? Here is a graphic of our performance:

(click to enlarge)

As you can see, the numbers continue to speak for themselves. The green line is our portfolio and the blue line is the S&P 500. Our custom hedge fund portfolio has seen a lower max drawdown, but more volatility than the indices. There's not much else we can say at this point. We're obviously confident in our selection and are personally invested in the positions generated by our custom portfolio. Stay tuned in the coming months for further updates and head over to Alphaclone to see what positions our MarketFolly portfolio currently holds.

Alphaclone MarketFolly Custom Portfolio Update: Q1 2009

Now that the first quarter 2009 13F filings have been filed with the SEC, Alphaclone (currently 50% off by the way) has gone through and rebalanced all of the clone portfolios. As such, we wanted to give everyone an update as to how our custom MarketFolly portfolio was performing. For those of you who are new to Alphaclone or to our portfolio, we would suggest checking out the following previous posts. We provided an in-depth overview of Alphaclone where we labeled it the ultimate hedge fund portfolio replication tool. Then, we first presented our MarketFolly portfolio here.

Just a few days ago, Alphaclone announced that they would be publishing portfolios by top bloggers. And, we are honored to say that they have published our portfolio. Thus, everyone who uses Alphaclone can now access our unique portfolio that is seeing 19.8% annualized returns since mid-2002. (Yes, you read that correctly... 19.8%). You can check out what positions our portfolio holds and can invest right alongside our portfolio and generate those returns for yourself. The MarketFolly portfolio is based on an assortment of hedge fund holdings and we've backtested the performance with Alphaclone's unique web-based software. Our custom portfolio is comprised of three stellar hedge funds: Seth Klarman's Baupost Group, Eric Mindich's Eton Park Capital, and Shumway Capital Partners (Chris Shumway).

Performance

As we've presented before in our in-depth presentation of our clone, we use a strategy that both generates Alpha to the tune of 17.7 and puts out a Sharpe Ratio of 0.7. Such a design has enabled us to see 19.8% annualized returns compared to only 2.3% annualized for the S&P500. Then, also consider that we have a 14% year to date return compared to S&P 4.4%. Lastly, let's look at the total return (this is where it gets good). Since mid-2002, our portfolio has seen a total return of 249.1% compared to a total return of only 17% for the S&P 500. The numbers speak for themselves. Check out the graph below from Alphaclone that shows all our backtested performance.

(click to enlarge)

As you can see from the graphic, you can also export everything as an Excel file for easy record-keeping. Oh, and we'd be remiss if we didn't also mention that if you enable a 50% portfolio hedge, the correlation of the portfolio to the indexes drops down to only 0.5. Even with the hedge, you're still generating Alpha to the tune of 16.0 and a Sharpe Ratio of 0.9. Definitely nice numbers for being protected and running a truly hedged book.

Our portfolio was just rebalanced to reflect that latest holdings from the 13F filings. Head over to Alphaclone to see what positions our portfolio is now investing in. Don't forget that Alphaclone is currently running a 50% discount, so take advantage of that while it lasts.

Alphaclone Announces Investable Portfolios & Fund Groups By Bloggers

There were two exciting developments yesterday out of our favorite hedge fund cloning software, Alphaclone. They've announced that you can now invest in the popular clones they've created through a partnership with Folio Investing. Additionally, they've also started publishing fund groups created by bloggers (including yours truly).

Firstly, we'll start with the news that is slightly more exciting to us on a personal level. Alphaclone has published two new fund groups. We are more than proud to announce that the Market Folly Fund Group is now live on Alphaclone. This fund group is of course the portfolio clone we created a few months back using their web-based software. The portfolio has been a huge success as it is up 15% year to date and has seen 20% annualized returns. The numbers really are astounding.

Additionally, Mebane Faber's World Beta fund group has also gone live. Meb's group tracks the top 10 holdings of ten of his favorite hedge fund managers and has put up equally astounding performance numbers. Mebane of course if the author of the well-known World Beta blog and the author of The Ivy Portfolio, his book about Endowment Investing which we recently reviewed. Needless to say, this is a very exciting development and we're happy to contribute to such great hedge fund tracking software. Stay tuned because there will also be other blogger fund groups released in the future.

Secondly, we wanted to touch on Alphaclone's other big announcement: they've launched investable clones in partnership with Folio Investing. Taken from the Alphaclone blog, this unique approach now "allows investors to buy an entire portfolio of securities at once with one transaction, and have any dollar amount automatically distributed at the proper percentage weights across all of the stocks in the portfolio." They've released investable clones based on Warren Buffett's Berkshire Hathaway and the 'Tiger Cub Portfolio,' which we've previously covered here on the blog as well. In addition to the clones they've just released, you can also customize your own clones to invest in with the help of Folio Investing. These are some exciting developments at Alphaclone and we can't wait to see what they come up with next.

Remember, Alphaclone is currently 50% off so take advantage of it while it lasts. Once you're signed up, you can check out our MarketFolly clone in depth and even invest right along side it if you like. After all, it's now seeing 20% annualized returns! Check back in on Friday as we'll post an update regarding our cloned portfolio now that the next round of 13F filings are in.

Custom Hedge Fund Portfolio Created With Alphaclone: Part 2

Ok, so we're back with the second installment of our custom Market Folly hedge fund portfolio created with Alphaclone. Last week, we unveiled our special portfolio that is a unique blend of 3 separate hedge funds: Eric Mindich's Eton Park Capital, Seth Klarman's Baupost Group, & Shumway Capital Partners (Chris Shumway). After a month straight of creating various portfolios, we finally found the right combination. The portfolio we created last week looks at the top 5 holdings from each of those hedge funds (equal-weighted) and meshes them into one portfolio of 15 holdings. We ran the portfolio with a 50% S&P500 hedge (which can be achieved by shorting SPY). When all was said and done, we saw that since August 2002, our Market Folly 'Top Holdings' portfolio has seen Alpha of 15.5 and a total return of 194.5% versus the S&P500 return of only 6.6%. It also has seen annualized returns of 17% versus the S&P annualized of 0.8%. As you can see, that's some solid performance. We created it all with Alphaclone, which you can get currently with a 50% discount. We use it every single day and highly recommend it if you're interested in creating portfolios based on hedge fund holdings.

This week, we're going to examine a portfolio based on the top 5 'best ideas' of each of those hedge funds. So, before we begin, make sure you check out the introduction to Alphaclone, our post on the Tiger Cub portfolio, as well as our previous post on our custom Market Folly clone.

The Market Folly 'Best Ideas' Portfolio

This week we've gone with a slightly different strategy. One of the other options Alphaclone has is it lets you run a portfolio based off a hedge fund manager's "best ideas." The rules associated with this clone strategy are:
1. Buy manager(s) top “new buys” as determined by the market value of the holdings.
2. Sell when manager(s) reports holding as sell out
3. Sell if the number of shares held by a manager decreases by 50% or more from the original amount.
4. Limit clone portfolio to no more than 50 holdings selected first on the basis of whether they are a new buy and next based on the % Portfolio of the holding.

So, we've taken the best ideas of the 3 hedge funds in our portfolio group to create a custom portfolio. You have the option to select either the top 1, 2, 3, or 5 best ideas from each fund. In our case, we've selected the top 5 best ideas from each hedge fund. And, as we mentioned earlier, we also set it up with a 50% S&P hedge, as we always like to run our portfolios hedged. Here's what the inputs look like on the Alphaclone screen:

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As we've touched on in previous posts on Alphaclone, you can configure your funds in numerous different ways, so it's totally customizable.

The Performance

Now, let's take a look at how the fund has performed over time. Overall, the results are quite impressive. Since August 2002, the Market Folly 'Best Ideas' Portfolio has seen a total return of 128.1% versus the S&P500 return of only 8.2%. The graph below shows our portfolio in green and the S&P in blue.

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Our portfolio has also seen an annualized return of 13.5% versus only 1.2% annualized for the S&P. Yet again, we've achieved some nice outperformance. And, we've done so with 11.8 Alpha, 0.8 Beta, and 0.6 correlation to the index. Our portfolio has achieved these results with a Sharpe Ratio of 0.5 (versus S&P -0.2) and has also seen less drawdown than the S&P. However, we did see slightly more volatility than the S&P. Overall, the portfolio is definitely a success and has outperformed the S&P. Let's also take a look at our year by year performance, as Alphaclone breaks it all down for us:

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As you can see, our portfolio is massively outperforming the S&P500 thus far in 2009. We have seen a 26.7% year to date return versus the S&P return of -5.8%. Additionally, you'll note that in both bear markets of 2002 and 2008, our portfolio outperformed the index by a wide margin. Out of 8 years, our clone has only underperformed in 2 of those years. And, the massive outperformance in the other 6 years more than makes up for that slight hiccup. Alphaclone gives you a great performance breakdown and gives you the ability to export all the data to Excel as well. After all is said and done, our portfolio has a total return of over 128% versus S&P's return of only 8.2%. That is outperformance over the long term at its finest.

The Holdings

Lastly, let's take a quick look at what our 'best ideas' holds in its portfolio that is currently achieving such massive outperformance. Remember, Alphaclone automatically rebalances the portfolio for you each quarter and tells you which securities to buy and sell (if you wished to mimic this with real money). As you'll see from the tabs on the screenshot below, you can see the recent transactions, as well as check out what the portfolio held in previous quarters. Alphaclone perfectly backtests everything based on the SEC filings that we like to cover on Market Folly. Without further ado, the holdings:

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Make sure to ignore the "% of Portfolio" column on the screenshot above. That column references how big a specific position is for its owner's hedge fund portfolio. So, when you see that Hansen Natural (HANS) makes up 10.3% of the portfolio... it means it is 10% of Eton Park's portfolio. All of our positions in the portfolio we've customized are equal-weighted. So, each of our holdings would get a 6.66% allocation. As you can see, our portfolio holds a wide variety of names and has severely outperformed the S&P thus far in 2009. It will be interesting to examine our portfolio again once Alphaclone automatically rebalances the holdings in May. We'll be posting an update once that happens.

The Comparison: 'Top Holdings' Versus 'Best Ideas'

In our custom Market Folly portfolios, we've created two different clones with Alphaclone that have both outperformed the S&P by a huge margin. However, one of our clones was even more successful than the other. Drumroll please: And the winner is......... The Top Holdings Portfolio.

If you compare the portfolios side by side, here's what you get:

1. The 'Top Holdings' Portfolio: Total return of 194.5% since August 2002; Annualized return of 17%
2. The 'Best Ideas' Portfolio: Total return of 128.1% since August 2002; Annualized return of 13.5%
3. S&P500: Total return of 5.6% since August 2002; Annualized return of 0.8%

While both of our portfolios easily outperform the S&P500 over the long term, the 'top holdings' portfolio goes above and beyond. As such, it is currently our selection for our custom Market Folly portfolio that we will be tracking on the blog from here on out. With the customization of Alphaclone, we were able to create thousands of custom portfolios and we've finally found the one that dominates.

Alphaclone

Hopefully you've enjoyed walking through our journey of creating a custom portfolio with Alphaclone. (We're starting to wonder if we're addicted to this tool since we use it everyday). Alphaclone is currently 50% off, so definitely check it out while the offer lasts. It is truly customizable and you'll be hooked for hours once you start to create portfolios. And, as illustrated above, you can come up with some massively outperforming strategies that you can put real money behind.

If you've missed our previous posts on hedge fund portfolio creation, check out our introduction to Alphaclone, our fund of funds (the Tiger Cub clone), and our custom Market Folly portfolio we created last week. If you have any questions or comments, feel free to mention them below or drop us an email.

Stay tuned, as we're going to start a contest in the near future to see who can customize the most dominant portfolio with Alphaclone. We want to find out which readers can take down our total return of 194.5% since mid-2002 and an annualized return of 17% with a custom group of funds. Be on the lookout and get ready to bring it on!


*Please note that all our Market Folly portfolios have a filter set at the very beginning of the Alphaclone custom portfolio process where we exclude positions with a market cap greater than $50 billion. We still allow all sectors and all other market caps. If you wish to replicate our portfolio with Alphaclone, just make sure when you create your custom fund group that you 'uncheck' the "greater than $50 billion market cap" box at the beginning, so that those positions are excluded from the portfolio. We did this because we found that slightly better performance could be achieved when enabling this filter.

Market Folly's Custom Hedge Fund Portfolio Created With Alphaclone

Today, we are proud to unveil our own Market Folly hedge fund portfolio. With Alphaclone (which by the way is currently 50% off) we have created our own "fund of funds" and have cloned a unique portfolio of equities. Two weeks ago, we introduced you to the ultimate hedge fund portfolio machine otherwise known as Alphaclone. In our introductory post, we told you about how it can clone the portfolios of individual hedge funds, which demonstrate some great market outperformance. Last week, we examined how you can combine multiple hedge funds into one cohesive "fund of funds" portfolio. In particular, we looked at the Tiger Cub clone, a portfolio consisting of all the various funds that have sprouted up since Tiger Management's dissolution. And, the performance metrics on that clone spoke for themselves: the Tiger Cub clone has beaten the S&P 500 by 15.5% annualized since 2000. What's awesome is that since the portfolio holdings are laid out for you and rebalanced each quarter, you can invest your own money based off these clones and pocket these gains. We're not even joking when we say that we use Alphaclone every. single. day.

The best part of Alphaclone is the extensive amount of customization available. This week, we want to further elaborate on that by creating our very own fund. You can create a fund of funds with as many or as few hedge funds as you like. For instance, the Tiger Cub clone we looked at last week contained 21 funds. Our Market Folly clone, on the other hand, only contains 3 funds. We have literally spent almost a month now testing out all sorts of portfolio combinations and strategies. We've mixed value funds with global macro funds, concentrated portfolios with activists, etc. You name it, we've tried it out. We went through the list of the hedge fund portfolios we typically cover here at Market Folly and mixed and matched them all over the place. Additionally, we also ran various strategies such as: top holdings, best ideas, and most popular holdings. Over the course of the month, we've literally created THOUSANDS of unique portfolios that are based off multiple hedge funds. But, we finally cloned the portfolio we were looking for.

The Market Folly Portfolio

Today, we are finally ready to unveil our Market Folly clone created with Alphaclone. And, as we mentioned earlier, we have only included 3 funds in the clone. Why, might you ask? Well, after running thousands of clones, we've found a great deal of performance in simplicity. We kept it simple and stuck to hedge funds that we know can outperform. The 3 hedge funds we selected are: Baupost Group, Eton Park Capital, and Shumway Capital Partners.

Here's the rationale behind our clone: We wanted to combine unique styles and managers while still keeping things from getting too complex. We found that if you added too many funds, it hurt performance. So, we simply took the best funds in three different categories: value, concentrated portfolio, and Tiger Cub. Then, we consulted the list of funds we track here on Market Folly and started to mix and match.

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- Our value fund is Seth Klarman's Baupost Group. If you're familiar with this fund, then you already know why we've selected it. They have unprecedented performance and define the essence of value investing.

- Our concentrated portfolio is Eric Mindich's Eton Park Capital. We wanted to pick a fund that ran a pretty concentrated portfolio because we've found that these types of funds can usually outperform due to their conviction in their picks. If they have high conviction in a portfolio holding, you can bet they've done extensive research on it and are confident. And, after comparing numerous concentrated-style hedge funds, we found that Eton Park kept putting up the best numbers.

- Lastly, our Tiger Cub portfolio is Shumway Capital Partners (Chris Shumway). Some will argue that selecting a Tiger Cub to be in the portfolio is basically like selecting another value fund. And, that's a completely valid point. But, we also want to point out that many Tiger Cubs often exhibit high conviction in their picks, and that was a characteristic we were looking for. So, we've essentially picked a fund that combines value with a concentrated portfolio. Plus, as you've seen above with the performance numbers the Tiger Cub clone kicks out, it's pretty self explanatory. The Tiger Cubs outperform and Shumway is a unique blend of value and high conviction.

The Strategy

Now to the good stuff. After creating our portfolio in Alphaclone, we started to mess around with strategy. As we've mentioned in our previous posts, you can chose numerous strategies with Alphaclone. You can choose the top 1, 2, 3, or 5 holdings from each hedge fund and combine them into one portfolio. Or, you can also take each fund's best ideas (the top 1, 2, 3, or 5 from each). Lastly, you can also take the most popular holdings (the positions most commonly held among the funds in your custom clone). The portfolio then runs equal weighted and rebalances each quarter. You also have the option to run the portfolio as long only, or you can hedge the portfolio with a 25%, 50%, 75%, or 100% hedge. To our surprise, we actually found two successful strategies. Below, we'll cover a 'top holding' strategy. Then, next week, we'll look at our 'best ideas' strategy.

The Market Folly Portfolio: 'Top Holding' Strategy Performance

Firstly, we'll focus on the Market Folly custom clone that runs the 5 top holdings from each of our 3 hedge funds all equal weighted, with a 50% portfolio hedge. The rules associated with this clone strategy are:
1. Buys the largest holding(s) for each manager(s) as determined by the market value of the holdings at the end of the quarter.
2. Sells when the holding is no longer ranked as being a top holding for that portfolio.

Remember, Alphaclone gives you all the historical performance metrics, your clone's current holdings, as well as which holdings were recently rebalanced from the last quarter. Here's what the performance looks like with the green being our portfolio and the blue as the S&P500:

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Simply put, this portfolio has performed quite well. Out of the eight years tracked, this Market Folly clone has outperformed in six of those years. And, year to date for 2009, this portfolio is up 15.7% when compared to the S&P500 -4.9%. You'll also notice that in the bear markets of 2002 and 2008, this portfolio also beat their benchmarks handsomely. With Alpha of 15.4, Beta of 0.7, and Index correlation at 0.8, we've found some solid alpha. Over a 3 year time frame, this portfolio has a total return of 28%, while the S&P500 has a total return of -29.3%. And, our portfolio has done so with less volatility, a higher Sharpe ratio, and less drawdown.

Here's the best part: Since August 2002, our Market Folly 'Top Holdings' portfolio has seen Alpha of 15.5 and a total return of 194.5% versus the S&P500 return of only 6.6% ... now that's outperformance!

The Market Folly Portfolio: Holdings

So, where does this great outperformance come from? Well, here's what the current portfolio looks like as broken down by Alphaclone. These are the holdings that have yielded the outperformance year to date in 2009 as mentioned above:

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Keep in mind that these positions are rebalanced each quarter and Alphaclone does everything for you by showing you which holdings to sell out of and which to buy (all under the 'Recent Trades' tab). And, you can see the holdings for each previous quarter as well. Also recall that our portfolio runs a 50% S&P500 hedge at all times as well. It's really easy to run a portfolio with your own money based off these outperforming clones.

Now that you've seen the Market Folly custom hedge fund portfolio, what do you think? Pretty impressive, right? What's crazy is that we literally came up with tons of outperforming portfolios that we could have shown you. This one simply generated some of the best numbers while holding true to our 'keeping it simple' mantra. Remember, this is just the first strategy of our Market Folly custom portfolio. We covered the 'Top Holding' strategy this time around, and next week be on the look out for our post when we implement the 'Best Ideas' strategy in our Market Folly custom hedge fund portfolio.

Alphaclone

Now you know why we use Alphaclone on a daily basis. As you can see, it is highly customizable and gives you great backtesting, tons of performance metrics, and a current portfolio that rebalances automatically each quarter. Don't forget that Alphaclone currently has a 50% discount, so get it while it lasts. We have only illustrated a tiny amount of the capabilities, so check it out and explore it for yourself. And, if you've missed our other posts on this ultimate hedge fund portfolio tool, check out our introduction and also the Tiger Cub clone. Stay tuned next week for the other strategy in our custom Market Folly portfolio!

*Update: Here's part 2 of our custom clone.

*Please note that all our Market Folly portfolios have a filter set at the very beginning of the Alphaclone custom portfolio process where we exclude positions with a market cap greater than $50 billion. We still allow all sectors and all other market caps. If you wish to replicate our portfolio with Alphaclone, just make sure when you create your custom fund group that you 'uncheck' the "greater than $50 billion market cap" box at the beginning, so that those positions are excluded from the portfolio. We did this because we found that slightly better performance could be achieved when enabling this filter.