Morningstar recently published a paper titled “Liquid Alternatives Have Yet to Prove They Belong in Portfolios.” We have concerns with the analysis on multiple levels.

In a recent piece, KKR’s Henry McVey said the following:

“Simply stated, we don’t want to own long-duration government bonds when governments around the world have shifted their tool kits from monetary stimulus to fiscal…

Like a popular diet plan, the term “risk-budgeting” is often discussed, and generally understood, but rarely followed in practice, it seems. However, just as Father Time will wield his will on all of our metabolisms, the markets will not be as forgiving at some point in the future…maybe even soon.

Earnings season is in full swing. This is the time each quarter when analysts and investors hear from company management regarding the past three months and gauge what that means for the future. Stock prices move based on how the company’s performance is viewed against what was expected. How financial results are judged relative to expectations provides insight into a behavioral anomaly that permeates the market.

Companies are shattering earnings expectations at a record clip…but Wall Street analysts appear skeptical the trend can continue.

As temperatures rise, sticky popsicle hands grapple for their pool towels and the markets continue to fluctuate like the ocean waves, now may be a great time to refresh your alternatives knowledge.

I’m going to start with the assumption that if the title of this blog caught your eye, you probably already allocate to one or more long/short equity managers. And with that, I’m going to skip over the general arguments for long/short equity strategies, except to say that if you do use long/short equity, it is likely in part due to where we sit in the market cycle in terms of valuations (high), interest rates (low and rising), margin levels (high and likely to be falling), and Fed policy (it’s becoming less accommodative).

The market fireworks that started in February have continued well into June with the S&P 500 rising or falling greater than 1% for 39 days so far in 2018 (through June 30). And that’s more than double the number of days that experienced this movement in all of 2017.

Lately we’ve fielded a lot of questions about fund fees. It seems both advisors and clients alike are finding fee disclosure confusing and there’s a lack of clarity around what investors are actually paying. This can become even more of a challenge for long/short equity funds.

In his most recent missive, “Investing Without People”, Oaktree’s Howard Marks takes on quantitative investing. We look forward to reading Mr. Marks’ memos, as they are packed with valuable insights from a venerable career. But in this case, the questions he poses are all too familiar & in my opinion, exhibits faulty logic.

For the next month, the global financial markets will take a back seat while trading desk monitors test their green hues. Knowing where interests will be focused, we created our own World Cup Challenge & while I won’t be able to win, I made my own picks…

Summer is upon us, and with that, many of us will be hitting the out of office button for a mid-year break. Whether you are heading to the beach with your family or having a stay-cation, it’s a good time to do some summer reading. So, we asked our 361 team for some recommendations to add to your shopping cart.

In January, we discussed how analyst sentiment was at a six-year high as of the end of 2017. Here, we take a look at the small cap universe and see if that feeling has endured, or if analysts have reined in their expectations.

With the return of volatility this year, we’ve noticed that many people immediately put alternative funds under the microscope to determine if they lived up to expectations. I recently wrote an article for Investment Advisor’s May issue discussing how many quickly concluded—incorrectly I might add—that alternative funds failed.

The only thing different about spikes in volatility this year might be the shorter time investors have to capitalize on them. Volatility has often risen sharply following unusually calm markets, but over the past decade the time in which the VIX reverts to normal levels after a spike has been shrinking.

While the term “alpha” is widely used, in our experience, it’s not particularly well understood. Alpha, properly defined, is return in excess of what could have been expected given the risks assumed to generate the returns. Notice that this is not strictly outperformance relative to a benchmark, but rather, its relative performance given the level of risk taken.

After a somewhat rocky first quarter in equity markets, we saw an uptick of advisors searching for long/short equity strategies. We looked at some of the top performers in the category over the 3-year time frame and were surprised to see that some had outperformed the S&P 500 Index and/or MSCI World Index. This piqued our interest, so we decided to dig in.

We have talked about the VIX Index before, and have shown that it is predictive of future VIX levels, but is it predictive of future equity returns? First, we’ll see if there is a relationship between the VIX and S&P 500 price returns on the same day. The below analysis uses data from 1/1/1990 through 3/31/2018, with both daily and monthly periodicity.

The Boston Marathon, also known as Marathon Monday, is a big day for many of us runners here at 361 Capital—whether we’re racing, supporting friends and family or simply watching for the love of the sport. This year was as exciting as ever as, for the first time since 1985, an American woman claimed the Boston Marathon title.

Lately, Value has not been very valuable within small cap stocks. Save for a couple of weeks last December, the Russell 2000 Value Index (RUJ) has underperformed its Russell 2000 Growth Index counterpart (RUO) on a rolling 13-week basis since February 2017.

Active managers were able to ring in the new year with some of the most favorable market conditions for stock picking on record. Spiking correlations in the first quarter have officially spoiled the party.

It’s Masters week…one of the most historic and watched sporting events in the world. The game of golf is a complex sport. As I sit and watch these guys try to read every little nuance of the green (break, speed, grain, etc.) before hitting their putts, I’m reminded of the painstaking due diligence process investment professionals go through when selecting a manager.

There has been talk about the performance of hedge funds, and in particular CTAs/Managed Futures funds, in February when markets sold off for the first time in recent memory. People seem to be surprised that these strategies posted negative returns in February, while the S&P 500 was down 3.69%. I’d like to address why such a focus and such expectations are unjustified.

This year’s NCAA tournament has seen its fair share of upsets. For example; a #11 seed made the final four—only the fourth time in tournament history. As I contemplated the implications on my bracket, my mind drifted off to what this suggests about investing, particularly in the Small Cap space.

In early February, volatility, long absent, made a comeback, as global equity markets sold off and the VIX experienced its largest one day move ever, jumping 116% on the 5th. This was prompted in part by rising inflation fears that pushed bond yields higher around the globe. So, where does that leave us?

Villanova over Georgetown in 1985, Bucknell over Kansas in 2005…NCAA Tournament history is littered with upsets. It’s how March Madness got its name. If you’re trying to win a bracket, we suggest you embrace the madness and try to call several upsets this year.

Over the past decade or so, the asset management and advisory businesses have become far more challenging. The forces of creative destruction have been hard at work, calling into question both the value add and fees charged by investment professionals at all levels.

Looking to win your office’s March Madness pool this year? Nothing busts a bracket quicker than letting behavioral biases guide the selection process. Use these 10 tips to remove behavioral biases from your picks.

Sports are a big part of the culture at 361 Capital, in my free time, I coach a youth soccer team. As soccer season draws near, I am gearing up for rain-soaked practices and at least seven rescheduled games due to late snow storms here in Colorado. As I reflected on being a coach, I recognize the parallels between soccer and managing a portfolio.

February ushered in volatility like we’ve not seen in quite some time. And whether the first several days were merely a blip on an otherwise steady climb, or the signaling of a broad regime change, we don’t yet know.

As I sit in the office and see my phone ring from the same person who calls me only when they want something, I politely send the call to my voicemail abyss. Why is it that I won’t take this person’s call, but I’ll take others’ calls when I think they might want something too? It is very simple…

A long-term trend has been broken, and it has nothing to do with volatility, bull markets, nor economic cycles. In this year’s Winter Olympics, the men’s ice hockey tournament will be played with non-NHL players.

Given the recent market shock, especially to those active in “volatility” markets, we thought it would be an opportune time to quickly re-visit a concept we wrote about two months ago. In that post we examined an often-overlooked cause of volatility (low or high), correlation.

In addition to death and taxes, investors could be forgiven for being seduced into the belief that there are two additional certainties in life: 1.) stocks will only ever go up, and 2.) the Patriots will either make it to the Super Bowl, or at least be in contention each year (they have played in the AFC Championship game in each of the last seven years).

Many of you know us from our counter-trend models, which can act as a great complement to trend-following models, but this blog will be focused on trend following given the struggles they’ve had recently.

In a recent article, Morningstar analyzed the performance of long/short equity funds, and concluded that while many managers in the category exhibit stock-picking skill, that skill has been insufficient to make up for the fees. Fair enough, but what caught our eye wasn’t the conclusion, but rather the methodology employed to assess skill: multi-factor regression analysis using the Fama-French factor returns.

One common investment evaluation statistic is that of the well-known Sharpe ratio. This ratio measures an investment’s risk-adjusted return by taking the investment return less the risk-free rate and dividing that by its standard deviation. It is an important tool to help you decide if you are getting adequately compensated for the volatility you are assuming in the investment.

Active managers are experiencing the market’s own version of a triple crown, as a triumvirate of tailwinds blow more heavily in their favor than at any point in the past several years. In sports, the triple crown is a highly coveted and exceptionally rare feat. Market statistics don’t line up quite as neatly…

With all the talk of the current low volatility environment and a large portion of people implying mean reversion is imminent, we thought we would weigh in further on the topic.

What was Nick Saban thinking when he decided to replace his quarterback with a true freshman in the second half of the National Championship game? Was he nuts? Was he desperate?

Now that 2017 is in the books with its record-setting market highs, I’ve been asked to share my thoughts on both tax reform and 2018.