November 12, 2019

Finding Alpha – the intersection between active share, capacity and manager skill

Introduction Seasoned investors understand that returns are a function of both beta and alpha. Beta being the component of returns derived from the benchmark return and alpha being returns generated over and above (or below!) the benchmark return. The difficulty with generating alpha is that it takes more than just manager skill. It also requires […]

August 9, 2019

Equus Point Capital Market Neutral Fund in a diversified portfolio

The benefits of uncorrelated assets and strategies A market neutral strategy should provide meaningful diversifying benefits for investors given the expected low correlation to the underlying equities market. Market neutral is often mistakenly as assumed to be negatively correlated. The fact that the equity market has a negative month does not imply a market neutral […]

April 9, 2019

Why a market neutral strategy

Employing a market neutral strategy within a broad portfolio has the potential to provide: Ability to add incremental returns irrespective of market direction; Reduced volatility; Superior risk adjusted returns; A return stream uncorrelated to other asset classes providing diversification benefits in a broader portfolio; and Reduce draw downs in negative equity markets. Market neutral strategies […]

September 26, 2018

Advantages and disadvantages of short selling

Short selling is the act of borrowing stock and selling it in the market in the expectation that the price of the stock will decline, before buying the stock back (hopefully at a lower price) and returning the stock to the lender. The borrower pays the lender a fee for this service, typically a margin […]

June 18, 2018

Market neutral versus ‘long only’ strategies

A market neutral strategy is an investment strategy that seeks to generate positive returns in both rising and falling markets, while avoiding the inherent systematic risks of the market. Managers of market neutral strategies are focused on absolute returns rather than returns relative to an index (more common in typical long only strategies). Market neutral strategies […]

March 4, 2018

Cash allocation in managing portfolio risk

Who is best at managing cash levels within a client’s portfolio? Is it an adviser looking after the client’s portfolio, or is it the specialist portfolio manager managing a single component or asset class of the client’s portfolio? On one hand it can be argued that the adviser has a holistic view of a client’s […]

December 10, 2017

Active management versus index management

There have been two themes that have caught our attention in recent weeks that reflect the dilemma facing investors: active management under-performance and the increasing use of ‘quant’ based strategies, such as index funds and exchange traded funds. Firstly, Morningstar have produced research that demonstrates that some 70-80% of active Australian equity managers fail to […]

September 27, 2017

Trade off between return, volatility and cost

With any investment there is invariably a trade off between return, volatility and the cost of that investment. Recently there has been significant discussion about active management and its inability to outperform benchmarks, which in turn has led to a rising popularity in index funds and exchange traded funds. We have also seen the introduction […]

March 5, 2017

Large cap v small cap and value v growth

Our stock selection and risk management process is based on the relative momentum of stocks within the S&P/ASX200 adjusted for beta. That is, we seek out stocks that demonstrate true alpha and not stocks where returns are simply driven by individual beta and the market. As a result our process will have a natural bias […]