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:

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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.

Doug Kass Model Portfolio Update

Doug Kass over at TheStreet.com just updated his model portfolio and we wanted to post up some of his notable changes. Firstly, here's his breakdown as compared to the S&P500. His recommended weightings vary from the S&P and he provides rationale for his adjustments.

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The most noticeable differences are in the Technology and Health Care sectors. Kass thinks business spending will stay low and that government intervention threatens pricing, respectively. Kass' also keeps 29% in cash which is a smart move, as you can deploy it should opportunities arise and use it as a buffer should trouble continue. His 15% exposure to credit is interesting as well, as he deems it 'opportunistic.'

He also included a list of stocks to be used in the portfolio and we just wanted to highlight his major moves. In the financial sector, he is dropping Visa (V) from his list, and that's probably a wise move. As we've noted in our hedge fund portfolio tracking series, a TON of hedge funds own V. And, when you start to see everyone and their dog holding a stock, it's usually time to get out (or at least take profits).

Kass likes some regional banks such as SunTrust (STI), PNC (PNC), Regions Financial (RF), among other plays. In technology, he thinks the typical titans are now overvalued and instead likes Microsoft (MSFT), Dell (DELL), and Qualcomm (QCOM). Numerous hedge funds agree with him in this regard, as we've seen many funds holding large MSFT and QCOM stakes. As a matter of fact, many hedge funds also owned the titans like RIMM and AAPL too, which Kass says to avoid. But, of course, the hedge funds could have possibly already sold out by now. Lastly, in terms of credit plays, Kass likes bank debt, high yield debt, and select bank loans.

It's been a little while since we last covered Kass, as we've been inundated with the hedge fund filings. But, since Kass is a hedge fund manager himself (and noted short seller), we still like to keep track of him. In the past, we've covered his signs needed for a market recovery. Make sure to check out his model portfolio update over at TheStreet in its entirety here.