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Posted by on Jul 13, 2016 in Commerce Asset Management, Market Insight

Apples vs. Oranges

Apples vs. Oranges

Kurt Voldeng is the Chief Investment Officer of Commerce Asset Management LLC and Portfolio Manager of the AdvisorShares QAM Equity Hedge ETF (QEH).   “Apples, meet Oranges.”  “Oranges, meet Apples.”  That is how the conversation needs to start for most media articles on hedge fund industry performance.  As is the case in “Hedge Funds Set for Worst First Half Since ’11 on Turmoil”.  As is usually the case, the article compares the returns of the hedge fund industry to the S&P 500.  The often quoted Hedge Fund Research, Inc. (HFR) database, which is the most institutionally used benchmark provider for hedge fund performance, is not well understood by the media. The hedge fund universe is a large basket of strategies, which includes equity securities and non-equity securities.  In addition, the vast majority of strategies are hedged to some degree so that their exposure to the markets in which their securities reside are not 100%. Of the index quoted in the article for the year-to-date performance, the HFRX Global Hedge...

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Posted by on Mar 29, 2016 in Commerce Asset Management, Market Insight

In Response to AFSCME Local 3299 and the University of California

In Response to AFSCME Local 3299 and the University of California

By Kyle Vogel, Head Trader and Senior Investment Analyst at Commerce Asset Management, Sub-Advisor of the AdvisorShares QAM Equity Hedge ETF (NYSE Arca: QEH)   A small but humorous riff hidden within the many episodes of Seinfeld involves the titular character’s father learning that he was owed $50 over 53 years ago. The penny-pinching retiree then wonders what he could have done with that $50 payday: “Do you know what the interest on that fifty dollars comes to over fifty- three years? Six hundred and sixty-three dollars and forty-five cents. And that’s figuring conservatively at five percent interest, over fifty-three years, compounded quarterly. Or, if you put it into a ten-year T-bill…” He goes further, “Do you realize, an above-average performing growth mutual fund for fifty-three years…”1 The comedic subtext is that he suddenly becomes a financial wizard by turning a small sum into a large reward, and the larger the reward grows, the angrier he becomes. It is easy to say that my present life situation should be...

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Posted by on Feb 4, 2016 in Commerce Asset Management, Market Insight

Exactly How Bad Was January?

Exactly How Bad Was January?

Kurt Voldeng is the Chief Investment Officer of Commerce Asset Management LLC and Portfolio Manager of the AdvisorShares QAM Equity Hedge ETF (QEH).   No one likes negative returns, but when it gets bad – I mean really bad – and there is no place to hide besides cash or being outright short (way too risky for most), better relative returns help soften that pain. In January, the S&P 500 was down roughly -5%. This decline doesn’t sound awful but mid-month, it was down -11% at its lowest point. Our estimate for Long/Short Equity, as measured by the HFRI Equity Hedge (Total) Index, is -4%. This number seems only slightly better than the S&P 500 until a more holistic view of the global equity markets is reviewed. If one goes outside of the S&P 500 – a large company biased market cap-weighted, U.S. centric benchmark index – a truer picture of the environment can be seen.  Take for instance the January performance of the following indexes: MSCI EAFE (developed non-U.S.)...

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Posted by on Aug 18, 2015 in Commerce Asset Management, Investment Perspective

The Paradox of Chasing Returns, Part 2

The Paradox of Chasing Returns, Part 2

By Kyle Vogel, Head Trader and Senior Analyst of Commerce Asset Management, Sub-Advisor of the AdvisorShares QAM Equity Hedge ETF (NYSE Arca: QEH) In part one, we looked at the statistics of how difficult it was for hedge fund managers to consistently outperform the universe average. In part two, we wanted to examine the consistency of a hedge fund’s1 performance as its assets grow. We took the HFRI Equity Hedge Fund universe and looked at individual managers’ assets and returns during a recent period. The dataset includes funds reporting at any point between August 2008 to March 2015. With a threshold benchmark of $100 million, we filtered out managers who did not meet the criteria of surpassing the $100 million mark at any point in their track record. We also removed funds that didn’t have at least six months with sub-$100mm returns and post-$100mm returns to remove any insignificant data. Once filtered, we compared the returns vs. the HFRI Equity Hedge Index2 during both relative time periods of pre-$100mm...

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Posted by on Jul 30, 2015 in Commerce Asset Management, Investment Perspective

The Paradox of Chasing Returns

The Paradox of Chasing Returns

By Kurt Voldeng, Chief Investment Officer of Commerce Asset Management and Portfolio Manager of the AdvisorShares QAM Equity Hedge ETF (NYSE Arca: QEH) Our firm often cites a paradox in the hedge fund industry: hedge fund of funds lag the mean hedge fund return. Represented below, the HFRI Fund Weighted Composite Index is composed of individual hedge funds of all types that are equally weighted while the HFRI Fund of Funds Composite Index is a separate index composed of equally weighted funds of hedge funds. Source: eVestment Source: eVestment We would be able to casually dismiss this paradox to fee differential, however, the excess performance of individual funds over funds of funds is above 3% annualized since inception, far above the added fee layer for fund of funds managers. If fund of funds managers can hand-pick top quartile all-stars why do they perennially provide subpar returns…hence the paradox. In the above example, fund selection actually detracts from the outcome. How can this be? There are multiple hypotheses that can...

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Posted by on May 22, 2015 in Commerce Asset Management

Global Investing Matters

Global Investing Matters

Kurt Voldeng is the Chief Investment Officer and Chief Operating Officer of Commerce Asset Management LLC and Portfolio Manager of the AdvisorShares QAM Equity Hedge ETF (QEH).   The revised April numbers for hedge funds came out on Friday, May 15th.  According to HFR, the long/short equity universe returned +1.90% in April.  This compares favorably against the Morningstar L/S Equity Category Average of +0.00%.  Year to date, the long/short hedge funds have returned +4.00% compared to +1.22% for the long/short mutual funds. In April, strong returns were generated by long/short hedge funds in Asia (particularly China), Eastern Europe (particularly Russia), Frontier Markets, and Brazil.  According to Morningstar, long/short mutual funds’ investments are predominantly North American based, so it is of little surprise that they are falling behind their hedge fund...

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