- This is a copycat trading strategy based on the quarterly 13F filings of five hedge funds.
- The model holds the top 20 consensus picks from a group of five hedge funds.
- Changes in the holdings occur only every three months when the end-of-the-month 13F filings becomes public information.
- From Jan-2007 to May-2020 this strategy would have produced an annualized return (CAGR) of 27.1%, much more than the 7.8% CAGR of the S&P 500 ETF (SPY).
Rational for a Copycat Strategy
Research from Barclay and Novus published in October 2019 found that a stock selection copycat strategy that combines conviction and consensus of fund managers that have longer-term views outperformed the S&P 500 by 3.80% on average annually from Q1 2004 to Q2 2019.
Similarly, our weekly published Best10(VDIGX) trading model which selects the 10 highest ranked stocks from the holdings of the of the Vanguard Dividend Growth Fund (VDIGX) outperformed the fund and SPY since July 2014 on average by about 5.4% annually.
Therefore, relying on the stock picking expertise of professional fund managers should provide better returns than a “do-it-yourself” strategy for an average investor.
Stock Selection from the Fund Manager Group
Stocks come from the quarterly 13F filings, point in time, approximately 45 days after the end of month filing date of each quarter, typically by the middle of February, May, August and November. Thus, the model is reconstituted with an approximate 45-day lag after the quarter-end, with positions occasionally rebalanced to equally weight.
Hedge Fund Filers:
- BRANDYWINE MANAGERS, LLC
- RA CAPITAL MANAGEMENT, L.P.
- SHANNON RIVER FUND MANAGEMENT LLC
- TCI FUND MANAGEMENT LTD
- WHALE ROCK CAPITAL MANAGEMENT LLC
The top 20 consensus picks from the group are selected by looking at each fund’s top 10 holdings and counting the number of times a stock is found in all of the funds. Stocks with the highest count are picked first.
Figure-1 shows the performance of this strategy since Jan-2007 done on the on-line portfolio simulation platform Portfolio 123. It would have produced an annualized return of 27.1% with low 1.5-times annual turnover. The total return is almost 14-times that of SPY and the average holding period for a position would have been 250 days.
The model outperformed the benchmark SPY every year, except for a small underperformance over 2010, as can be seen from the table below.
The analysis shows that a hedge fund copycat strategy would have produced excellent returns and is preferable to a buy-and-hold investment strategy of index funds. Minimum trading is required, only four times per year. The current holdings are listed in the appendix.
At iMarketSignals one can follow this strategy where the performance is updated weekly. The next holdings update will be middle of August 2020, but the holdings’ weights should be periodically rebalanced to approximately 5%.
Current Holdings (as of 5/18/2020)
|CPB||2014-11-17||Campbell Soup Co.|
|CHTR||2016-08-15||Charter Communications Inc|
|GOOG||2018-02-15||Alphabet Inc. Class C|
|NYT||2018-08-15||New York Times Co. Class A|
|CP||2018-11-15||Canadian Pacific Railway Ltd. (2001)|
|CNI||2019-05-16||Canadian National Railway Co.|
|FLEX||2019-11-15||Flextronics International Inc.|
|ARVN||2020-05-18||Arvinas Holding Company LLC|