How Much Do Pod Analysts Think About Factors?
I’m hoping someone in the pod world can offer some insight here - how explicitly are you thinking about factors when findings ideas?
Are you thinking ”we need to reduce exposure to factor x, so any short ideas I have must also help offset this factor risk”?
Or do you just find the best longs/shorts in your sector and then hedge out any remaining factor risk by going long/short a basket of stocks (even if these hedges wouldn’t be good longs/short candidates on their own)?
Don’t really think about them that much. Just pitch ideas, sometimes PM will ask about factor exposure in weekly but tends to deal with it himself
Thanks, I appreciate the response.
How often are you doing pairs vs individual longs and shorts?
I’ve seen some threads on WSO talking about pods doing trades that look like “company x will benefit from a secular tailwind more than company z on a relative basis so I will go long company x and short z” (this is an oversimplification, I know this is not actually what a good thesis looks like).
Does this just vary by PM?
It varies by PM and it varies by analyst. Some analysts are more factor risk-aware and are capable of pitching a long and a short together. Others stick to just one side and it's more on the PM to figure out how to balance exposures.
If I’m 2 years in at a LO but want to jump to a pod, would it be a waste of time to teach myself about factors and the “style” of a pod thesis?
I’ve assumed that one of my main hurdles will be showing that I can think like a pod investor if I come from a LO background, but what I’m gathering here is that maybe this isn’t the case.
You absolutely will need to "educate" yourself about factor and pod-type investing.
You will be presumed guilty of having too long an invesment horizon, not thinking about catalysts, and being clueless about positioning and factors. Plus of course no shorting experience. The more you can counter all those points, the better your chances.
Some PMs think very relative value, some don’t and manage the long and short book separately and hedge around core ideas.
I do a lot of relval pairs and some isolated longs. Generally have a pretty open comm style with my PM “tell me what’s interesting in the space” type conversations.
PM asks me for a pair, but I don't think about factors... PM figures that out on a portfolio level.
If that's best practice, I don't know.
If you have a sleeve, often. I have a set of max-alpha ideas but then I have to constrain that portfolio by the factor limits. Perhaps it’s better said - I think more in terms of idio/relative performance at the top of the funnel (an idea with a strong idio catalyst & peers suitable for hedging factors is ideal)
Ullam architecto id sed recusandae alias at. Optio minus repudiandae rerum et maiores numquam. Amet modi sunt deserunt aut qui. Nemo enim possimus similique eos debitis asperiores vel.
Cum odit doloribus quidem cum rem laboriosam minima. Maiores quia officia inventore sequi. Provident voluptas perferendis ut explicabo sed facilis quos.
Quod aut ea voluptas dolorum voluptate occaecati. Officiis sint quis id molestiae. Quibusdam et a in nihil aut sapiente tenetur. Voluptates rem dolores rerum ut ex hic. Itaque enim quo in est dolores iste.
Est voluptate incidunt maxime vel. Quis earum eum sed cumque qui. Eveniet quasi incidunt accusantium autem. Sit cum et ut est et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...