Weekly Research Commentary from Newfound Research

Attack of the Clone: Lessons from Replicating Long/Short Equity

In this commentary we attempt to identify the sources of performance in long/short equity strategies.
Using Kalman Filtering, we attempt to replicate the Credit Suisse Long/Short Liquid Index with a set of common factors designed to capture equity beta, regional, and style tilts.
We find that as a category, long/short equity managers make significant changes to their equity beta and regional tilts over time.
Year-to-date, we find that tilts towards foreign developed equities, emerging market equities, and the value premium have been the most significant detractors from index performance.
We believe that the consistent relative out-performance of U.S. equities against international peers has removed an important alpha source for long/short equity managers when they are benchmarked against U.S. equities.

Corey Hoffstein & Justin Sibears

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