Mean Regression

I came across an interesting paper that formalizes the benefits of duration targeting in managing Fixed Income portfolios. Here’s a  podcast interview with one of the authors   Martin L. Leibowitz . The one neat result of his research, as he describes it, is that: after a period of 2 x targeted duration, the portfolio’s annualized yield will end up with what you started with irrespective of the volatility in between. I want to quickly check this result so created and back-tested a portfolio using PORT in Bloomberg. I was really interested to see if a Duration targeting portfolio does outperform a “buy and hold” variety. This was not meant to be a holistic result verification, but a quick trial/check. So I created two portfolios Port A] Duration Targeting Portfolio.  Used PORT Optimization and Back-Testing to arrange this portfolio. Targeted Duration was 5years. So I had to analyze over a 10 year period. I selected 2010-2019-end. Port B] Buy and Hold Portfolio compris...

The week of July 19 th has seen massive volatility in equities. The major indices saw a huge drop on Monday, the 19 th  due to fears of COVID Delta variant and stalling growth. But ended the week with all major indexes making record highs.  There has been a lot of discussions on market rotations and growth vs. value debates have filled the news media. Here’s a quick look at some charts to map movement from small-mid cap stocks to large cap, and value vs. growth over the last few months. We’ll see this against the backdrop of 10-year treasury yield. Hedge Funds started this rotation in April : In my previous blog  13F Analysis with Bloomberg Port , I’ve analyzed 2021Q1 13F filings of Hedge Funds. I split the equity filings into three groups - the new-buys, selloffs and no-change stocks.  I combined the new-buys and no-change equities common across 2 or more hedge funds into single portfolio (calling it FLNG_Q121_1), and analyzed it using Bloomberg PORT.  ...

  Friday June 18 th was Triple-Witching Friday for equities as it experiences a huge volume spike in trading due to the confluence of three events ·          Expiration of single stock options ·          Expiration of Index Futures ·          Expiration of Index Options This happens yearly on the 3 rd of March, June, September and December. Stock option expiration may require stock delivery resulting in increased trading. While index futures and options are cash settled, all the open interest in derivatives require market makers to hedge positions with equities, that now needs to be closed, again resulting in heaving trading.       Also to take advantage of this liquidity spike, some of the major indexes (below) also rebalance on these days. Index rebalances result in an additional 40% * Market-On-Close flow due to index funds. This addit...

  I’ve been analyzing the Q1 13F filings of Hedge Funds. In the last blog I split the equity filings into three groups - the new-buys, selloffs and no-change stocks, to study any mean differences across various fundamental and technical factors. But I couldn’t find any discernable (statistically significant) differences. Next I combined the new-buys and no-change equities common across 2 or more hedge funds into single portfolio (calling it FLNG_Q121_1), and analyzed it using Bloomberg PORT. Here are couple of screen grabs. I made the portfolio equal-weighted for simplicity. I could have weighted the equities based on overall positions from all hedge funds. Also, I have back-dated the portfolio to April 1, 2021. This way we can measure the returns and other factors starting Q2, approximately after most of these decisions were made. Of course, many of these positions could be longer term, so comparing two month returns against S&P500 may not demonstrate potential accurately. I...

  I’ve been analyzing the Q1 13F filings of Hedge Funds. In the last blog we looked at the top new equity buys and selloffs of hedge funds. We also analyzed them by sector to observe that Energy, Industrials, Health Care and Financial showed strong support pointing to strength in cyclicals and reopening play. Next my goal was to analyze the new-buys, selloffs and no-change stocks with various fundamental and technical factors to find any commonality. But I was not able to find any discerning differences in the respective means for those factors across these three groups – NewBuys, SellOffs and Static (no-change). I combine NewBuys and Static as one to see if there is any difference against SellOffs, and couldn’t find anything significant. Next I considered high conviction new-buys and selloffs – meaning equities that have 2 or more buyers or sellers. Still no significant difference. Here are some results. Chart 1 – Boxplot of last 3 month returns for the 3 groups NewBuys, SellOff...

  Institutional Investors with over $100 million in investments are required to file 13F forms with SEC on a quarterly basis. The 13F filings include record the investment changes made by the various investors. Analysis of these filings gives a glimpse of what these big investors are (or more accurately ‘were’) thinking, the securities they are backing, and the securities they are backing out of. Of course, since these are delayed filings, the buy and sell decisions cannot be directly interpreted with current state of the market. None the less it certainly offers opportunity for some healthy analysis. Bloomberg FLNG command produces useful 13F information aggregated across various cross-section of institutional investors including Banks, Hedge Funds, Family Office etc.   I have run some analysis just focusing on Hedge Funds. Here are a couple of quick results. Change from last Quarter & Sector Weights for Q1, 2021 Sector Total Number of Selloffs ...

This is part-4 of the Russell ETF series in studying underlying market trends for US equities. Last time we looked at various momentum ETFs. Now we review ETF covering various different factors. At the moment US equities market is witnessing a series of down days; especially for the tech and growth stocks. May 12 witnessed 2.67% drop for Nasdaq, retreating back to beginning of the year level (Chart 1), and 2.15% drop for S&P 500. Liz Ann Sonders of Charles Schwab advised to follow value factor across the market vs. focusing on specific sectors that might be traditionally associated with value. So we’re analyzing factor-based ETFs, again focusing on the Russell family. Below table lists various ETF focusing on Yield, Low Volatility, Low Beta in addition to Momentum, Growth and Value that we have already seen previously. Name Ticker Russell Index ETF_Theme iShares Russell 1000 Growth ET IWF US 1000 Growt...