Tag Archives: hedge funds

Explaining the Value Premium

Guest post by Contributing Editor, Robert P. Seawright, Chief Investment and Information Officer for Madison Avenue Securities.

Value has persistently outperformed over the long-term.  Why is that?

In the most general terms, growth stocks are those with growing positive attributes – like price, sales, earnings, profits, and return on equity.  Value stocks, on the other hand, are stocks that are underpriced when compared to some measure of their relative value – like price to earnings, price to book, and dividend yield. Thus growth stocks trade at higher prices relative to various fundamental measures of their value because (at least in theory) the market is pricing in the potential for future earnings growth. Over relatively long periods of time, each of these investing classes can and do outperform the other.  For example, growth investing dominated the 1990s while value investing has outperformed since. But value wins over the long haul. Continue reading

Did Tail Insurance Turn South in Recent Market Volatility?

Investment News recently ran a story called “Black Swan Funds Duck Market Mayhem.” Since the bear market of 2008 the idea of managing the potential for extreme market downturns has become a focus for many portfolio managers—and finding the best method to do that has been a challenge.  Continue reading

Hedge Funds: The Emperor’s New Clothes?

Brett Arends recently wrote a piece for MarketWatch in which he expressed the opinion that hedge funds are a sucker’s bet.  He bases his argument on a fascinating  study called Higher Risk, Lower Returns: What Hedge Fund Investors Really Earn that was published in 2009.  The authors of the study, professors from Emory University and Harvard, came to the conclusion that hedge fund investors would have (on average) been better off buying an S&P500 Index fund. So, if hedge funds have performed as badly as this academic study suggests, why have assets invested in hedge funds skyrocketed over the past 20 years?  Continue reading