I’ve often wondered how much of my performance has been related to stock picking abilities, or I am just in a lucky place, in a country that has been growing well for the past decade and in a market that has increased some 300% since I begun working.
Now the clever fellows over at Alpha Attribution have done a comprehensive study of all hedge funds and derived a list of the hedge funds that have the best stock picking abilities. Enjoy!
Stock picking starts with honesty. Let’s say you are a hedge fund manager and you held GOOG stock for a quarter. If GOOG goes up 10%, that is great, but if the technology sector goes up 7%, much of that 10% return may have been coming from the sector. You got the sector right, which is worth 7%, but your stock selection ability is only worth 3% (10%-7%). We define stock selection skill is one’s ability to pick a security that outperforms its sector (with some adjustments for beta, etc).
Source: Alpha Attribution