Using Behavioral Factors to Hedge International Stock Portfolios

C. Thomas Howard, PhD CEO and Director of Research of AthenaInvest, Inc. and Portfolio Manager of the AdvisorShares Athena International Bear ETF (HDGI) published an interesting White Paper available on InvestmentNews.com, “Using Behavioral Factors to Hedge International Stock Portfolios.”

Here’s an excerpt:

There is considerable evidence showing that stock picking skill is common among active equity mutual funds. It is also the case that managers reveal their best idea stocks by means of relative portfolio weights, which in turn can be aggregated across funds in order to create superior portfolios. What is less obvious is how it is possible to build underperforming portfolios, using this same information for identifying low conviction stocks held by closet indexers. Underperforming portfolios are of interest in populating the short side of a long-short portfolio or a short only portfolio that can be used for tactical and hedging purposes.