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Portfolio Strategy

How Investors Can Outperform Market Wizards Without Paying High Fees

Wondering how your hedge fund managers do it? Take a look at this post, where we walk investors through the steps it takes to invest well.

Stan Altshuller
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Advances in data analytics technologies are allowing investors to access the very same factors that make hedge funds attractive, while avoiding many of the pitfalls of active management. Investors that employ one or a mix of these indices have been enjoying early success. Bypassing high fees, illiquidity, poor transparency and complexity inherent in hedge funds, they’re investing directly in the securities preferred by hedge fund managers – without paying big bucks.

The Novus C Indices are designed to track important hedge fund factors through public equities. The data underlying the indices is sourced from an aggregate hedge fund portfolio called Hedge Fund Universe (HFU). HFU is composed of over 1,000 vetted hedge fund manager portfolios. It is a subset of the Novus Public Ownership Database of over 10,000 historical portfolios built from regulatory filings around the globe. All the indices described here have been simulated using daily P&L and adjusted for corporate actions as well as the lag associated with public filings.

Conviction: Stocks with Highest Conviction from Hedge Funds

Stocks with Highest Conviction from Hedge Fund Hedge Funds express conviction in companies by sizing their positions. Does hedge fund conviction play a role in the future performance of stocks? Evidence shows that it does. If a stock accounts for a significant portion of a manager’s portfolio, it is considered an investment with conviction. We constructed a historical portfolio of stocks with the highest number of managers invested with conviction. The results are incredible. The index outperforms the market by five percentage points annually with similar volatility. Investors would be wise to pay attention to the stocks in this index as they represent the cumulative stock selection and sizing skill of the hedge fund industry.

Conviction Index vs. Benchmarks Conviction:

conviction index versus benchmarks

To see the stocks with the highest hedge fund conviction, download our research report, Four Ways to Outperform Market Wizards without Paying Fees.

Concentration: Stocks with the Highest Hedge Fund Concentration

The concentration index tracks stocks with the highest percentage of shares held by hedge funds. We set quantitative thresholds when constructing this index to avoid penny stocks, closely held stocks or extremely illiquid stocks with few holders, since they are less important to the industry as a whole. This index, while showing attractive alpha, has a much higher volatility profile than the market and would do well coupled with a hedging strategy. Still, investors looking for the highest octane stocks in hedge funds should consider this list.

Stocks with the Highest Concentration


highest concentraion stocks


To see how these stocks outperformed market benchmarks, download our report today.

Consensus and Crowdedness

The previous were only two ways investors can utilize Novus’ indices to make better investment decisions. Investors deserve better access to the brightest minds in investment management. Now, thanks to latest advances in data technologies, this is possible without the high fees and other pitfalls of active management. The Novus C Indices allow investors to access hedge fund factors through public equities and are only available to Novus subscribers.

To see how consensus and crowdedness can be used to invest better, download our latest report.

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