Interestingly, a fund - regular or HF - often has many customers who pay a "subscription fee" by investing in the newsletter writer's ideas.
Of course, those particular newsletter writers front-run their own newsletters by investing realtime but only releasing newsletters
once a month, at best.
Those newsletter businesses have a higher cost base so they charge more, and they also often charge performance fees - sometimes for alpha, often for beta.
But there are LOTS of subscription-based financial services out there.
My data sub costs a certain amount. My newspaper costs me a certain amount. My ETF manager charges me 4bp a year.
And lots of RIAs charge asset-based account (subscription) fees rather than transaction fees.
The difference between a subscription advisory business and a fund management business is that the subscription business shows everything. The fund management business newsletters I see rarely talk ex-post about the positions which were tried, then failed, then booted
from the portfolio.
Perhaps people look down on those who sell their service by subscription because they don't understand it's all the same business, just packaged differently.
It used to be that a bulge bracket broker, or even a second or third-tier broker had a large research team.
Those teams are a lot smaller than they were 20yrs ago. To some extent, the people needing input on single stocks has declined (they buy ETFs).
To some extent that effort has become more concentrated. AAPL has more owners now than it did 25yrs ago, but most now "do their own research" by reading the newspaper, getting some data, reading the 10k, and maybe making a model with straight line growth.
There are a lot more investors in AMC now too, though having gone down that rabbithole recently, I am not sure what most of them are smoking, but they too will tell you to do your own research.
Many brokers now provide research by subscription (MiFID2 anyone?) but beyond that, there are analysts who have broken out of the BBBs to start their own boutique, and they charge a subscription for their research too, sometimes paid by cheque, but often by CSA.
I am constantly surprised by the professionals in the buyside (i.e. investing - whether HFs, large active LOs, or even passive managers and RIAs) who do not "subscribe" to independent external research because they look down on it.
I can suggest there is a community of people out there "selling subscriptions" (i.e. providing fee-based services to multiple payers, not tied to AUM or performance) whose job basically boils down to taking advantage of the people out there who 'don't need help'.
Heh-heh.
And... I have had four convos in the last four hours suggesting...
it me.
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For those following the Evergrande situation, there is one special commentator who deserves singling out.
The "former Fitch analyst" Dr Marco Metzler is the key man. He is a veritable fount of misinformation and bad analysis. And he is absolutely prolific. Today he had this out.
The "recent DMSA study" to which he refers, where he concludes that there must be massive CDS exposure to Evergrande, is today's press release.
It shows that Asian high yield bond funds held (and still hold) Evergrande bonds. Some are active, some are passive.
The first bit:
Top 10 Evergrande holding funds have lost $7bn this year. They own Evergrande which trade at 25cts on the dollar. Fitch says they are going to 5cts, therefore there is 20cts left, therefore they will lose $2bn more.
@therobotjames For the sake of playing devil's advocate, I will take the other side of that, "for most" for a couple of reasons.
I will start with the following assumptions (which may be wrong-footed, but their mine):
a) there is no tax differential between high turnover and low turnover
@therobotjames b) we are talking institutional - comms are 2-5bp, cost structure in mgmt fees is, say 15-20bp/yr
c) end investors WANT active share risk which is why they pay you the big bucks to provide active risk.
@therobotjames What IS certain in this case is that
a) you are in the active mgmt business so it is CERTAIN you have inherent expectations of creating positive alpha vs benchmark. You may not succeed every week, but on average, that's your business model.
b) Moving from say 4.5bp/yr comm
Weirdest thing, but getting less weird as time goes on.
Just had the third kingfisher (trying to figure out what it is - there are more different kingfishers than I knew) fly inside in the past 6 weeks.
Cute little buggers.
Got the cat ALL excited.
Kingfishers are year-round, but as we approach winter, LOTS more migratory birds show up. The striated heron we had standing on a railing 1 meter outside my front door yesterday when I woke up is non-migratory but I think came when his friends started showing up 2-3wks ago.
Over the winter, we get about a half dozen types of heron/egret, some cormorants, a number of other shore birds as well as a variety of songbirds. Going to try to attract more songbirds this year. The seabirds can stay further away. Pretty, sure, but cleaning up after them? Nah.
The process described is commendable. The optimisation tweaks (i.e. lower turnover) are debatable.
In my experience if one has significant conviction in single name alpha and conviction in the sizing methodology, higher turnover can lead to significant value
add as long as one also has an understanding of the behavioral drivers of the alpha. If one has "fundamental driver" alpha, that will lead to longer horizons, and less confidence in one's ability to harvest cross-position noise. If one has confidence in non-LT fundamental driver
alpha (could be valuation, style bias, investor class bias, intracorrelation clusters, flows analysis) then alpha can be harvested over a much shorter horizon, and comms are low enough that the increase in Sharpe from changes in weighting will offset those cleanly.