Best Sector at MM funds?
Previously made a post asking about comparisons between the big 4 multi managers, but got responses saying the PM/sector matter more. Are there sectors that are generally easier/more lucrative to cover at these platforms? For instance, I imagine consumer pods are the most alpha generating due to their alt data edge but TMT might be the most lucrative due to sector volatility. Curious to hear about other sectors and how they perform under the platform model (aerospace and defense, FIG, etc)
I would not attribute alt data availability to alpha generation prospects tbh. There’s likely a relationship there for *some* people but in data-dry sectors you can argue there’s more alpha to be harvested by actually trying to secure correlating “data” streams.
Something like consumer has a lot of data but a significant % of the material data has been commoditized… is there edge in finding new, overlooked data here and building mosaics from the widely used data? Sure. But I’d bet money that there’s more edge relative to the market if you managed to do this for the data-dry sectors.
Using the term data sparingly here; it’s not always going to look like dealer inventories or Nielsen.
The ideal sector must tick some of the criteria:
- You have interest in reading about those companies and you have the ability to deeply understand them (covering healthcare or semiconductor could require you to have a certain degree of study).
- There are idiosyncratic differences between companies (you don't want to have a very commodity-linked coverage). At a MM, playing on those differences will be your alpha generator.
- Large market cap.
TMT or Consumer
How is healthcare / medtech (excluding Biotech)?
I think it’s counter intuitive but you want to be in sleepier sectors where like you can run big gross exposures because the stocks are lower beta - sectors like utilities / reits / manufacturing / industrials/ A&D - obviously utes / reits are rate sensitive - but generally have less single name blow up risk (emphasis on generally)
problem with something like utes tho is that there’s very little idiosyncratic differences between utilities so in the mkt neutral setup seems pretty hard to trade (does have tons of liquidity though). Basically the idio factors are just regulatory jurisdiction (which determines rate base) and then the population growth of a region, p much nothing else. fwiw I would rank the GICS sectors as follows as far as how lucrative they are to trade in mkt neutral set-up: 1) TMT 2) Healthcare 3) Consumer Discretionary 4tie) Energy/Materials/Industrials and then everything else. All depends on your interest though—you can make bank trading any sector if you’re good at it and interested in it.
Completely inaccurate
Which sectors do you think are the best to cover
So because utes are low beta and to your point not all that idiosyncratic - there a are great opportunities for range trades and mean reversion trades - it’s a great space to run a large book that can just grind out PNL - with the exception of some of the renewable stuff this year and the NRG blow up last year you don’t have the swings like in tmt stocks - and multimanagers like that for large high sharp books
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