By observing what hedge funds are holding in aggregate, one can potentially isolate themes that produce outsized returns. A best ideas strategy involves the creation of an index or basket of stocks based on hedge fund ownership. However, depending on how you approach the ownership data, outcomes vary drastically. To create an effective best ideas strategy, special care must be given to: (1) data integrity, (2) filer identity, and (3) construction mechanism. In this minisode, Aishwarya Damodharan, Shraman Ghosh, and Nathan Innis of Novus discuss the interworkings of the Novus 4C Indices, and how the Novus Conviction Index has fared in the times of Coronavirus.

WORKS MENTIONED:

13F Research with Barclays– https://indices.barclays/file.app?action=shared&path=qis/insights/qis-insights-13f-alpha.pdf

Consensus vs. Conviction­– https://www.novus.com/blog/which-factor-is-truly-a-best-idea

Barclays Partnership­– https://www.novus.com/barclays-public-data-partnership

Conviction Index during the Coronavirus– https://www.novus.com/blog/hedge-fund-best-ideas-during-covid-19

SPECIAL NOTICE:

On July 10, 2020, the Securities and Exchange Commission proposed to significantly raise the AUM threshold for funds required to file quarterly 13F disclosures. The new AUM threshold would become $3.5 billion, effectively excluding 90% of current filers. Aside from shrinking the dataset with which best ideas strategies are curated, we anticipate this change would have many negative consequences for the investment community and markets.

Read our analysis of the proposal here: https://www.novus.com/blog/dont-mess-with-13fs

Please consider adding your voice during the 60-day public feedback period by emailing the SEC at rule-comments@sec.gov with subject line “File Number S7-08-20”; or by submitting a comment on the SEC’s website https://www.sec.gov/rules/proposed.shtml

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