World Beta Blog

I had a good breakfast with my buddy Steve Drobny the other day here at the beach.  Steve runs Drobny Global and is a macro fund manager/research/writer, and I thought I would repost this great video of an interview with always entertaining hedge fund manager Hugh Hendry of Eclectica.  While I didn’t like  The Gap in the Curtain as much as he did, Hugh is always worth listening to for his insightful commentary and often contrarian analysis.  Not to mention, he is one of the few fund managers having a great year.

Link to Eclectica website public fund performance here and here, and profile on Hedge Fund Letters here.

Hugh Hendry, Eclectica Asset Management and Steven Drobny, Drobny Global Advisors from LSE SU AIC on Vimeo.

Fun video.  (HT: AF & Sea)

Roger Craig - Knowledge Tracking from Steven Dean on Vimeo.

I probably find most of my links from Abnormal Returns, but CXO isn’t far behind.  Found this paper and CXO summary here:

Investing for the Long Run (SSRN) by Ang and Kjaer

Abstract:      
Long‐horizon investors have an edge. They can ride out short‐term fluctuations in risk premiums, profit from periods of elevated risk aversions and short‐term mispricing, and they can pursue illiquid investment opportunities. The turmoil we have seen in the capital markets over the last decade has increased the competitive advantage of a long investment horizon. Unfortunately, the two biggest mistakes of long‐horizon investors – procyclical investments and misalignments between asset owners and managers – negate the long‐horizon advantage. Long‐horizon investors should harvest many sources of factor risk premiums, be actively contrarian, and align all stakeholders so that long‐horizon strategies can be successfully implemented. Illiquid assets can, but do not necessarily, play a role for long-horizon investors, but investors should demand high premiums to compensate for bearing illiquidity risk and agency issues.

One of the difficulties I have is that a great deal of my information comes from various sources (blogs, newsletters, academic papers, website, etc).  And while many of those have blog like platforms and thus can be read in google reader, many do not (see a lot of the institutional reads on the sidebar as an example).

I am designing a website, mainly for my own benefit that may even be private, that will likely aggregate most of what I want to read.  If you have experimented with the idea, or know of a better solution, please let me know…

I post (and retweet) a lot of good reads on Twitter that never make it onto the blog (usually I forget to repost).  Feel free to follow along here @MebFaber.   Here is a fun video with Seth Klarman:

An Interview with Seth Klarman and Charlie Rose from Facing History and Ourselves on Vimeo.

I’m headed to Colorado for Thanksgiving (and again likely at Christmas), and while I assume most will be busy with the holidays if you find yourself on Drunken Frenchman on Mary Jane (my home mountain and location for plenty of sutures), feel free to ping me and we can grab a slice of pizza or perhaps some apres microbrews. (Will be in Denver as well for a bit.)

I promised my family no financial reads this Thanksgiving, just football (go Hoos and Broncos!) and snow (fingers crossed).   Although I will be taking this book for a spin on the plane:  Over the Edge of the World: Magellan’s Terrifying Circumnavigation of the Globe .

Since Mom will not be there this year I’m taking the reins and will attempt at cooking a turkey.  Any pointers or recipes fire them over!

Happy Thanksgiving to all!

Really interesting new paper from GMO.  We did a lot of the same tests in-house on these option strategies.  I was always curious why a put write ETF hasn’t launched….more later.

GMO link here (requires login).

I’m excited about the addition of a new analyst to the team, Prabhat Dalmia.  Prabhat is a recent MBA graduate from UCLA Anderson and has over 10 years of experience in software development and technology consulting experience.  He holds a Bachelors of Technology in Chemical Engineering from The Indian Institute of Technology, Kanpur.  So far he hasn’t met his match for any sort of research challenge, so if you have any great ideas fire them over…

We were playing around with some ideas on country valuations, and below is a simple strategy of sorting countries by dividend yield.  The top 25% of countries sorted on yield outperform the bottom 25% by about 4% per annum, rebalanced yearly (all in USD). This work was inspired by the work of Dimson, Marsh and Staunton from Triumph of the Optimists.  We don’t have access to their data so we used Global Financial Data, and this included 9 countries to start and 18 by study end.   The DMS crew in the 2011 GIRY report found an even larger spread of ~8% across 19 countries from 1900-2010.  Nice free download of the Global Investment Returns Yearbook 2011 (GIRY). (Automatically download PDF here.):

(Note:  DFA also has a great piece using the DMS data titled “Eight Decades of Risk Parity”, but it is not public but worth a read if you can find it…)

Countries included: Australia Austria Belgium Canada Denmark Finland France Germany Italy Japan Netherlands Norway Spain Sweden Switzerland United Kingdom.

Another study by Keppler found similar results.  Lots more in the publication The High Dividend Yield Return Advantage by Tweedy Browne.

Below are a couple ETFs in foreign developed and emerging with particularly high yields (the %ages next to the country name reflect the % allocation in the EFA and EEM indexes).

(disclaimer: we may own some or all of these for clients):

October was a particularly difficult month for CTA trendfollwers.  Below is a table from the Automated Trading System blog, followed by some great bluegrass tunes by the trendfollowing bard Ed Sekoyta:

Trying to think of a fun contest to run on Kaggle, any ideas?