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A Broader Look at Hedge Fund Returns Data

In a recent video blog, I examined the dubious nature of the reported performance analytics of three different hedge funds. As I noted, most hedge funds report risk-adjusted performance and correlation measures based off of monthly returns data. Because a significant number of hedge funds appear to calculate monthly returns using stale prices, these measures make hedge fund results look better than they actually are. Now, I’m going to illustrate how these same biases exist in....

How to Make Your Own High-Yield Corporate Bond Fund
With interest rates at low levels for a number of years now, many investors have moved some portion of their high-quality bond portfolios to higher-yielding investments like high-yield corporate bonds. I’ve long argued that there’s not much these strategies add relative to a traditional stock fund and high-quality bond strategy. Further, the traditional stock fund and high-quality bond allocation strategy tends to have lower costs and be more tax efficient. This is a bit of a qualitative argument though, and I wanted....
Examining Bond Market Risk
With interest rates on intermediate- and long-term bonds ticking up a good bit over the beginning of the year, many investors are refocusing on the potential risk within bond portfolios. (As one data point iShares 20+ Treasury ETF is down about 1.8 percent year-to-date.) For many bond portfolios, that risk can come from either interest rate risk or credit risk. Here I’ll focus on interest rate risk.

The potential interest rate risk in a bond or bond fund portfolio is largely determ....
The Long Slog of Europe's Debt Crisis
Europe’s debt crisis is entering its fourth year, and I wanted to pass along an update since it’s not getting the news attention it once was. In some ways, that’s good news. Part of the reason Europe is getting less attention is because its bond markets aren’t in the full blown crisis mode they’ve faced during the past three years.
 
Yield Spreads Relative to Germany
 
Who Says Bond Returns Have Been Bad?
With the low rate levels of the past few years, some investors have found themselves less than happy with their investment choices. This has spurred many to repeat the same mistakes they made in 2003–2004: replacing low-yielding bonds with riskier investments that are more like stocks than high-quality bonds. Investors have become so pessimistic that — in my opinion — they don’t realize how good bond returns have been over the past few years for those who were willing to modestly extend maturity.
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The Risks of Yield Seeking Strategies
Over the past couple of weeks I’ve focused on high-yield corporate bonds, but three other yield-oriented investments I frequently get asked about are high-dividend stocks, preferred stocks and oil-and-gas master limited partnerships (MLPs). In the past couple of years, I’ve found that most investors who ask about these strategies are contemplating using them in place of high-quality fixed income because “fixed income rates are low.”
 
The most important ....
How Hedge Funds Have Fared in 2011
An article in The Economist noted that 2011 has not been a great year for the hedge fund industry. The magazine reports that hedge funds are down about 9 percent this year, while the S&P 500 Index is down just 3.4 percent.
 
This anecdote illustrates a fairly well-known fact, namely that hedge funds aren’t nearly as uncorrelated with equity market performance as they genera....
A Profile of 10 Return Premiums
(This post stems from my interview with Antti Ilmanen, author of Expected Returns. Feel free to check out part one and part two of my Q&A with....
Q&A with Antti Ilmanen, Part 2
This is the second half of my interview with author Antti Ilmanen. For the first half, please read Q&A with Antti Ilmanen, Author of Expected Returns.
 
JK: In the book you point out the historically poor reward for bearing credit risk. Specifically, you say that "Bonds exposed to credit risk have only marginally outperformed Treasuries over long histories by 0.2-0.5 percent ann....
Q&A with Antti Ilmanen, Author of Expected Returns, Part 1
Antti Ilmanen is the author of Expected Returns, a book published by Wiley Finance this year. In my opinion it is a must read for investment professionals and for those investors who want to better understand the science of investing. Antti has just joined AQR Capital Management to represent ....