Who’s Been Naughty or Nice
The five top hedge fund long stock pickers with long U.S. equity AUM over $3 billion produced 10.7% average annual alpha in the past three years (through October 2015). The five bottom hedge fund long U.S. equity stock pickers had negative alpha averaging -6.5% during the same period. Both lists contain well-known and well-followed managers with a combined long U.S. equity AUM over $100 billion. These rankings overcome the flaws of simplistic performance measures by using a persistent and hence predictive metric of alpha.Ranking Hedge Fund Long Stock Pickers
Fund rankings usually focus on absolute or relative nominal returns. Reliance on such simplistic measures, frequently mislabeled as “alpha,” is hazardous for allocators and consultants and typically leads to picking yesterday’s winners, who tend to become tomorrow’s losers: high-beta funds in bull markets and low-beta funds in bear markets. To overcome these flaws, AlphaBetaWorks calculates returns independent of risks taken – αReturn – the performance a fund would have generated if markets had been flat. A true measure of security selection skill, αReturn is strongly predictive of future stock picking performance. To the extent a fund derives significant returns from long equity holdings, our approach helps allocators and consultants avoid losses and unhappy clients. Furthermore, absent this approach, mindless followers of famous funds are headed for disappointment.Top and Bottom Five Hedge Funds by Stock Picking Return
A comparison of nominal long hedge fund portfolio performance to market indices is misleading, since a portfolio may be taking dramatically different risks. It follows that equating outperformance relative to S&P500 with alpha is wrong. Under this simplistic approach, leveraged market ETFs generate positive alpha in up years and negative alpha in down years – a flawed result and a dangerous criterion for investment decisions. Adjusting returns for the factor (systematic) risks taken to generate them is required to identify stock picking return and, correspondingly, stock picking skill. Below we list the top and bottom long U.S. equity stock pickers among the hedge funds that can be analyzed using regulatory filings:Name | αβReturn | αβScore | αReturn | αScore | βReturn | βScore |
Harbinger Capital Partners LLC | 15.45 | 95.04 | 15.38 | 95.4 | -0.01 | 49.92 |
Icahn Associates Holdings LLC | 9.09 | 80.19 | 11.11 | 85.92 | -2.01 | 23 |
PAR Capital Management, Inc. | 8.32 | 95.56 | 10.93 | 98.85 | -2.69 | 12.48 |
Longview Asset Management LLC | 14.09 | 97.02 | 9.40 | 87.53 | 4.49 | 98.83 |
ValueAct Capital Management LP | 3.29 | 74.01 | 6.73 | 90.06 | -3.52 | 3.9 |
Name | αβReturn | αβScore | αReturn | αScore | βReturn | βScore |
Bridgewater Associates LP | -9.05 | 1.86 | -8.15 | 4.28 | -0.99 | 28.03 |
Omega Advisors, Inc. | -8.29 | 0.22 | -7.19 | 1.25 | -1.14 | 16.06 |
Pershing Square Capital Management LP | -5.36 | 25.15 | -5.83 | 25.01 | 0.28 | 56.73 |
Axiom International Investors LLC | -2.62 | 16.93 | -5.83 | 0.71 | 3.17 | 94.05 |
Paulson & Co., Inc. | -5.05 | 14.65 | -5.63 | 10.72 | 0.57 | 61.94 |

Harbinger Capital Partners LLC: Risk-adjusted Return from Security Selection (αReturn), Long U.S. Equity Portfolio

Bridgewater Associates LP: Risk-adjusted Return from Security Selection (αReturn), Long U.S. Equity Portfolio