Comments on: After launching 130/30 index, S&P says best yardstick is actually a long-only index http://allaboutalpha.com/blog/2008/04/29/after-launching-13030-index-sp-says-best-yardstick-is-a-long-only-index/ A finance blog about hedge funds, portable alpha and alternative investing. Wed, 22 May 2013 00:18:38 +0000 http://wordpress.org/?v=abc hourly 1 By: A “common sense approach for those who believe in active management” | Risk and Return http://allaboutalpha.com/blog/2008/04/29/after-launching-13030-index-sp-says-best-yardstick-is-a-long-only-index/comment-page-1/#comment-300659 A “common sense approach for those who believe in active management” | Risk and Return Tue, 07 Jun 2011 03:47:54 +0000 http://allaboutalpha.com/blog/2008/04/29/after-launching-13030-index-sp-says-best-yardstick-is-a-long-only-index/#comment-300659 [...] After launching 130/30 index, S&P says best yardstick is actually a long-only index and Survey of hedge fund professionals: 130/30 “minor discussion within larger context” [...] [...] After launching 130/30 index, S&P says best yardstick is actually a long-only index and Survey of hedge fund professionals: 130/30 “minor discussion within larger context” [...]

]]> By: curious http://allaboutalpha.com/blog/2008/04/29/after-launching-13030-index-sp-says-best-yardstick-is-a-long-only-index/comment-page-1/#comment-101645 curious Wed, 30 Apr 2008 23:31:19 +0000 http://allaboutalpha.com/blog/2008/04/29/after-launching-13030-index-sp-says-best-yardstick-is-a-long-only-index/#comment-101645 I would love to see a completely reversed benchmark for all these alpha-oriented strategies. Rather than measuring the funds relative to the market (i.e., the "just don't do anything") benchmark, how about measuring the performance relative to how close the manager is from perfect achievement of it's goals? For example, you could compare the long portfolio performance vs. the performance of all the stocks in the market that increase, i.e., all the opportunities that were available to make money on the long side. And you could measure the short portfolio performance vs. all the short-able stocks in the market that decreased, i.e., all the opportunities to make money on the short side. And of course measure both over a particular time period. This way managers would be compared against their investment strategy goal. No manager would be expected to actually achieve this perfect portfolio of longs or perfect portfolio of shorts, but managers would be measured on the basis of relative underperformance against perfection. Kind of like measuring how close they get to the bulls-eye. I'm oversimplifying here, but you get the idea. I think there would be a lot more information about manager risk-taking, strategy, and skill contained in this type of analysis than in benchmarking to traditional market indices. I would love to see a completely reversed benchmark for all these alpha-oriented strategies. Rather than measuring the funds relative to the market (i.e., the “just don’t do anything”) benchmark, how about measuring the performance relative to how close the manager is from perfect achievement of it’s goals?

For example, you could compare the long portfolio performance vs. the performance of all the stocks in the market that increase, i.e., all the opportunities that were available to make money on the long side. And you could measure the short portfolio performance vs. all the short-able stocks in the market that decreased, i.e., all the opportunities to make money on the short side. And of course measure both over a particular time period.

This way managers would be compared against their investment strategy goal. No manager would be expected to actually achieve this perfect portfolio of longs or perfect portfolio of shorts, but managers would be measured on the basis of relative underperformance against perfection. Kind of like measuring how close they get to the bulls-eye.

I’m oversimplifying here, but you get the idea.

I think there would be a lot more information about manager risk-taking, strategy, and skill contained in this type of analysis than in benchmarking to traditional market indices.

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