Abstract
We argue that only hedge funds whose returns are driven by beta management of exposures to latent risk factors could be successfully replicated. We develop a methodology for creating a portfolio of ETFs that replicates risk factor exposures taken by top beta active cloneable hedge funds. The strategy could be interpreted as cloning beta exposures of the best beta active hedge funds, and it delivers outstanding long-term risk-adjusted performance. The ETF portfolio only requires annual rebalancing, and is constructed with a transparent algorithmic approach, which conforms to a definition of a smart beta strategy.
| Original language | American English |
|---|---|
| State | Published - Oct 2015 |
| Externally published | Yes |
| Event | 2015 Financial Management Association Annual Meeting - Orlando, FL Duration: 1 Oct 2015 → … |
Conference
| Conference | 2015 Financial Management Association Annual Meeting |
|---|---|
| Period | 1/10/15 → … |
Keywords
- beta active management
- factor investing
- hedge funds
- performance prediction
- return replication
- risk factor exposures
EGS Disciplines
- Finance and Financial Management