Beta Capital Advisors

  • The Golden Dilemma- Challenging the rationale for gold investing

    Posted November 3, 2013 By in News With | Comments Off ZDF Gebäude Hamburg

    Financial Analysts Journal, “The Golden Dilemma”.Paper demystifying rationale for gold investing by Claude B. Erb, CFA and Campbell R. Harvey. Published Financial Analysts Journal, Volume 69, Number 4, 2013.

    Aggressive expansion in the monetary base across developed markets against the backdrop of growing government budget deficits and unsustainable long-term debt levels have raised concerns on the strength of the US dollar, Euro, and Japanese yen as reserve currencies. With fears of monetary debasement and heightened inflationary concerns, investors have turned their attention to gold and other real asset classes. With gold, however, having enjoyed a dramatic run-up in prices since 2000, investors’ are questioning what the future may hold. In this paper the authors debunk the traditional rationale for gold investing, but set the stage for potential continued long-run strength in the asset.

    Historically gold has been viewed as an effective inflation hedge. A review of performance for the metal since 1975, when Congress reauthorized direct investment, demonstrates that gold has not been an effective hedge for realized inflation. While longer-term there is evidence of effective hedging powers for the metal (the authors offer an intriguing comparison of pay scales in ancient Rome to today’s US military illustrating the constant value of services as valued in gold ounces), the long-term is likely to extend beyond investors’ investment horizons and perhaps even their lifetimes.

    With rising concerns over the debasement of today’s reserve currencies, the authors then address the effectiveness of gold as a currency hedge. A review of historical context points to fairly consistent inflation-adjusted gold returns across currencies, but little evidence of weakening currencies contributing to stronger real gold returns. The real price of gold is shown to closely parallel the results measured across eight currencies over the period 1975-2012, while the FX rate returns exhibited quite divergent paths relative to each other over the same horizon.

    A third rationale calls for gold as an alternative investment to low real return assets. With real interest rates at record low levels, we have witnessed gold prices reach record levels. Here the paper caution on the risks of confusing correlation with causation. There is little evidence of higher real gold prices being the direct result of low real yields, and in fact, one could as easily argue that real low yields are the result of high gold prices. Using the more extended history of UK inflation adjusted bonds the authors show that longer term correlations for real yields and inflation adjusted gold prices, while still negative, are much lower than what we have experienced in the US, but more importantly, explain less than 9% of the movement in the price of gold.

    Gold as a safe haven asset for times of impending stress has been argued by gold bugs from time immemorial. A safe haven implies stability in prices during times of stress, readily accessible during periods of turmoil, and sufficient liquidity to use as a means of exchange. Gold has been a favored hedge against the ravages of hyperinflation, but careful analysis may challenge the conventional wisdom. Using Brazil as an example, the authors illustrate that while Brazilian prices appreciated by 259% per annum between 1980 and 2000, the purchasing power of gold for local investors lost 71% over the same period, very similar to the loss of gold purchasing power for US based investors over the same time frame. As for liquidity and accessibility, the authors’ quote Marc Faber, “When Timor sacked Aleppo and Damascus in 1400, it didn’t help to have your savings in gold. You lost your life and your gold.”

    The fourth rationale for owning gold is the return to a “de-facto” world gold standard. While return to a gold standard would bring substantial discipline back to the management of government budgets, the authors argue that, in addition to the impracticalities of such a return, a loss of monetary policy to address periodic market imbalances would impose severe burdens on the global economy. Paraphrasing Winston Churchill the paper stresses, “…the gold standard is the worst form of currency, except for all those forms that have been tried.”

    The last argument presented, and where the authors find potential for continued gold strength, is that gold today is “under owned” by institutional investors and central banks. With over 76% of all of the world’s gold supply already above ground and expansion of available gold averaging only 1.5% per annum since 1900 (World Gold Council estimates), increases in demand for the metal could support continued price appreciation. With gold held by investors representing only 2% of the world’s stock, but gold estimated to represent up to 9% of global investment assets, any increase in investor demand, in light of limited amount of “new” gold coming to market, will have significant impact on prices.

    Adding to the argument, Central banks hold a further 2% of the global gold stock, but developing market reserves are substantially underrepresented relative to the US, Japan, and European central banks. As developing economies, and their monetary reserves, continue to expand and growing concerns over the long-term viability of today’s reserve currencies, developing markets are expected to continue to increase their monetary allocations to gold.

    While questioning the traditional rationales for gold investing, The Golden Dilemma still finds support through fundamental supply and demand analysis for the continued role of gold as an asset class in investor portfolios.

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  • S&P launches mid-year 2013 SPIVA report

    Posted October 3, 2013 By in News With | Comments Off freeimage-3692904-high

    S&P announces launch of U.S. mid-year 2013 SPIVA report. For the trailing twelve months ending June 20, 2013 large cap, mid-cap, and small-cap active funds trailed their respective S&P benchmarks by 59.58%, 68.88%, and 64.27% respectively.

    To view full report go to

  • Latest S&P SPIVA

    Posted March 30, 2012 By in News With | Comments Off nestegg

    Go to below link to see the latest S&P analysis on the historical performance of active managers relative to benchmark indices across a broad spectrum of asset classes. S&P reports year-end 2011 SPIVA results.

  • Out of the Dark: Hedge fund reporting biases and commercial databases

    Posted January 20, 2012 By in News With | Comments Off article_image_opt3

    A critique of hedge fund commercial databases by Adam L. Aiken (Quinnipiac University), Christopher P. Clifford (University of Kentucky), and Jesse A. Ellis (University of Alabama)
    Published November 16, 2011

    Are the attractive returns hedge fund surveys present truly indicative of hedge fund’s ability to deliver sustainable alpha? For years investors have relied on commercial databases, despite their recognized deficiencies, to assess the investment merits of hedge fund investing. Without public disclosure on the composition and performance of hedge funds investors are not able to gauge the impact on databases of hedge fund managers’ ability to decide whether and when to include their funds, often with the advantage of a free look back period. Or the ability to remove their funds at their own discretion, often again with a free option of skipping reporting for a short period with the hopes of jumping back in if and when performance rebounds. While studies have attempted to gauge the impact of “self-selection” and the loss of “dead funds” on performance databases, the lack of broad, standardized information has made it difficult to draw definitive conclusions.

    This paper takes a unique approach to assess the known deficiencies in hedge fund performance surveys. In their attempts to broaden distribution many hedge fund managers have registered their funds with the SEC. With registration comes the obligation for public disclosure of fund holding information. Many of these registered fund-of-funds in turn invest across a significant cross section of the hedge fund market. The authors distilled the public disclosures of these funds to develop a universe of 1,445 distinct hedge funds for 2004-2009. More importantly, roughly half of these funds are not included in any of the major commercial databases, thus presenting an opportunity to gauge differences, if any, between those funds where managers choose to present their results in a database and those who elect to remain private.

    The analysis draws conclusions which challenge the prevailing wisdom that hedge fund managers, unlike their mutual fund peers, are able to leverage unique skill, freedom from restrictive policies, attractive incentive structures, and unique trading strategies and vehicles to deliver sustainable levels of alpha. The study uncovers substantial performance premia between those funds reporting to databases and those opting to remain private. The registered fund data also provides insights to the performance of funds listed in surveys versus those removed, with the listed funds outperforming listed funds by, again, substantial margins. The study concludes the impact of self-selection biases, both on the way in and out of commercial databases, are enough to offset the alpha claims of the industry, “We find evidence that most of the average fund’s alpha can be explained by its decision to voluntarily report its performance to a database.”

    Though the industry may challenge the study based on a universe of limited registered funds, the authors’ present compelling evidence of the representativeness of their universe. What is certain is that increased levels of transparency in the hedge fund industry can provide better information for investors to conduct their due diligence and, perhaps, for policy makers to gauge embedded systemic risks. Maybe greater scrutiny of the space can lead to better- informed allocations of capital and greater understanding of risk.

  • Journal of Indexes features “Is Core Investing Dead?” in its Back to Basics issue

    Posted May 3, 2011 By in News With | Comments Off Is core investing dead

    The Journal of Indexes, widely followed by passive investment practitioners, academics, and investors, features Beta Capital Advisors’ “Is Core Investing Dead?” article in its May/June 2011 Back to Basics issue. Please click here to view issue.

  • S&P announces Target-Date fund scorecard

    Posted March 10, 2011 By in News With | Comments Off S&P announces Target-Date fund scorecard

    S&P announces launch of Target-Date fund scorecard. S&P’s Index Versus Active Fund (SPIVA) scorecard methodology seeks to provide comparisons of active managers across different active segments correcting for important biases prevalent across many performance universes, namely survivorship bias and style consistency.

    For more information go to

  • S&P launches year-end 2010 SPIVA report

    Posted March 4, 2011 By in News With | Comments Off S&P launches year-end 2010 SPIVA report

    S&P announces launch of U.S. year-end 2010 SPIVA report. Across the most actively followed market, large cap funds, 66%, 58%, and 62% of active funds underperformed the S&P 500 index over the one, three, and five years ending December 31, 2010. 

    To view full report go to

  • The ABCs of Hedge Funds: Alphas, Betas, and Costs

    Posted January 25, 2011 By in News With | Comments Off The ABCs of Hedge Funds: Alphas, Betas, and Costs

    Financial Analysts Journal, “The ABCs of Hedge Funds: Alphas, Betas and Costs”. Interesting discussion on the challenges of evaluating hedge fund performance and attribution of returns over the period 1995-2009. The paper estimates how survivorship (performance universes not reflecting performance of failed funds) and back fill (performance universes permitting new entrants to insert historical results) biases lead to substantial over-stating of hedge fund returns. The paper concludes that over the time-frame studied, simple equity, bond, and cash betas accounted for 42% of overall performance; fees for 31%; and alpha, which was consistent and positive over the time frame studied, accounted  for a further 27%.

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