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Are Hedge Funds A Good Indicator?

Last Updated on 10 February, 2024 by Abrahamtolle

The 2019 Barclays QIS Insights Systematic 13F Hedge Fund Alpha paper, authored by Mobeen Iqbal, Ph.D., and Farouk Jivraj, Ph.D., delves into the intricate world of hedge fund strategies, particularly focusing on the significance of 13F filings. Are hedge funds a good indicator?

These filings, mandated by a 1978 amendment to the Securities and Exchange Act of 1934, require institutions managing over $100 million in securities to disclose their holdings quarterly.

The 13F filings have long been a source of intrigue for both professional and amateur investors seeking to glean insights into the stock picks of hedge funds.

The paper aims to answer crucial questions surrounding the use of 13F data, exploring whether it enables the construction of effective strategies to harness the stock-picking skills of hedge funds.

The paper acknowledges the challenges posed by the 45-day lag between the reporting date and the public availability of holdings, questioning the effectiveness of strategies built on potentially outdated information.

Despite these hurdles, the authors set out to unravel the mysteries surrounding hedge fund alpha and the viability of constructing successful copycat investment strategies.

Methodology Deployed In The Study

To address whether hedge funds are a good indicator, the authors leverage proprietary data from Novus, a provider that meticulously classifies hedge fund types and styles. The distinguishing factor in this paper is the focus on “Fundamental Equity Hedge Funds” (FEHF), a subset of hedge funds with a longer-term view of equities.

The methodology involves modifying existing tests to suit the universe of managers tracked by Novus. The authors employ tests identified by Cohen, Polk, and Silli (2010), adapting them to the specific nature of hedge funds, which are less likely to be benchmarked compared to mutual funds.

Key Findings of the Study

Let’s look at the key findings of the study:

1. Identification of “Best Ideas”

The paper rigorously establishes that the “best ideas” extracted from 13F filings indeed yield economically significant and statistically robust risk-adjusted returns, surpassing the performance of the S&P 500. The authors navigate beyond conventional wisdom to substantiate the efficacy of this approach.

2. Alternative Measures of “Best Ideas”

Delving deeper, the authors introduce alternative measures of identifying “best ideas” that better align with the idiosyncrasies of hedge fund holdings. Conviction and consensus emerge as novel metrics, incorporating nuanced factors such as position sizes and the number of unique managers endorsing specific stocks.

3. The Power of ‘Who’ in Portfolio Construction

A groundbreaking revelation lies in the acknowledgment of the paramount importance of the ‘who’ in constructing 13F trading strategies. By differentiating funds based on qualitative characteristics, especially focusing on Fundamental Equity Hedge Funds (FEHF), the paper unveils that tracking these funds’ positions consistently outperforms alternative strategies, underscoring the critical role of fund classifications.

4. Combining Conviction and Consensus

The paper’s ingenuity shines through in its demonstration that a strategy combining consensus with a conviction threshold yields impressive results. By amalgamating the number of managers holding a stock with the conviction level, the authors unveil a strategy that delivers returns increasing monotonically with the position size managers allocate to various stocks.

5. Robustness to Lag

The paper concludes with a resounding affirmation of the findings’ robustness to the temporal challenges posed by the lag between the filing date and the public release date. This resilience reinforces the practical viability of the proposed strategies.


In summary, the 2019 Barclays QIS Insights Systematic 13F Hedge Fund Alpha paper transcends conventional analyses, providing a meticulous exploration of hedge fund strategies. The findings not only validate the enduring value of 13F filings but also underscore the need for nuanced qualitative classifications in portfolio construction.

The fusion of conviction and consensus in strategy formulation represents a pioneering contribution to the evolving landscape of hedge fund analysis, showcasing the authors’ commitment to unraveling the intricacies of copycat investing based on publicly available data.

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