What are the Other Three Stocks in the Poor Man's Hedge Fund?

by Graham Giller June 27, 2009 01:19

Our original Poor Man's Hedge Fund was built from five stocks. However, evidence presented in a recent post, studying the tracking of portfolios of various sizes, suggests that the right number might be larger. If one looks at the chart in detail, it's probably best to conclude that the optimal size is somewhere in the region 4–10 stocks. Since my prior bias is too include more stocks, thereby acting to reduce the exposure to idiosyncratic factors, I decided to go with the eight stocks that give the best tracking, as measured by the in sample regression R². The data for these eight are listed in the table below.

A Poor Man's Hedge Fund - Membership

The added companies are:

  1. Janus Capital Group Inc. JNS
  2. Franklin Resources Inc. BEN
  3. Lincoln National Corp. LNC
 

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About the Author

Graham Giller - Headshot GRAHAM GILLER
Dr. Giller holds a doctorate from Oxford University in experimental elementary particle physics. His field of research was statistical astronomy using high energy cosmic rays. After leaving Oxford, he worked in the Process Driven Trading Group at Morgan Stanley, as a strategy researcher and portfolio manager. He then ran a CTA/CPO firm which concentrated on trading eurodollar futures using statistical models. From 2004, he has managed a private family investment office. In 2009, he joined a California based hedge fund startup, concentrating on high frequency alpha and volatility forecasting. My updated resume is on LinkedIn.

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