Jake at Econompic gives us this chart, which shows that convertible arbitrage has indeed led the way this year:

Unfortunately, he has a fine post, which shows the dark side of this rally and the “carry trade” which has been helping finance it:

if the correlation of assets purchased is near one on the way up, it is sure as hell going to be that high or higher on the way down. And what happens to all these investors that are attempting to leave the same exit door at the same time? Massive re-purchasing of the dollar and massive selling of any risk asset… joy.

Joy indeed.

Cross posted at “The View From the Bluff.”

Few active managers, even if they actually outperform their benchmarks, can overcome the expenses associated with doing so. The reason is not necessarily that they cannot do a good enough job of picking investments that can outperform, but that constrained to only going long they can’t make a big enough bet on what they like, or don’t like, to move the needle sufficiently! Here is a nice examination of this issue.

The Alpha male has several nice posts up on this in addition to the ones above. On appropriate benchmarks:

After launching 130/30 index, S&P says best yardstick is actually a long-only index and Survey of hedge fund professionals: 130/30 “minor discussion within larger context”

The evolution of these vehicles:

The new face of 130/30? and Reality Check: “130/30? and “quant” not synonymous

For a discussion of the actual alpha that theoretically might be received by investors read this post on an interesting study:

130/30 in the 1930s

Most importantly, for those unfortunate enough to have been exposed to Chuck Jaffe’s execrable column on 130/30 strategies (or their brethren) I recommend Media turns hostile: 130/30 now “dubious” “overblown” “faddish” “hype”. The Alpha Male is more generous with Jaffe than I would be, but that is probably a good thing.

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