how to understand returns taking consideration of net exposure?

tonapornottonap's picture
Rank: Baboon | 164

Hey guys, i can't seem to wrap my head around this.

say this HF's portfolio has a net exposure of 70% and its one year return considering net exposure is underperforming the S&P, say -5% vs. SP's -4%. How does one interpret this?? Thank you so much guys!!

Comments (4)

Apr 10, 2019

net exposure can be interpreted as beta and in your case we can say that beta is close to 0.7 which means that portfolio is less sensitive to market movements that the market itself. so we would expect such portfolio to undeperform the market (if market goes up by 10%, then based on our beta, portfolio is expected to be up 7%(i didtn take alpha into the account))
Hope it helped

Apr 10, 2019

Thank you @artur17777 !!

A follow up question - given a net exposure of 70% (beta of 0.7), is that excellent if the manager with that net exposure outperform the SP because it shows the alpha effectively?

Apr 10, 2019

Yes, it would be great!

Apr 10, 2019