13 October 2009
Burnham has a portfolio overweighted with a) High VMO names (which was bad this summer) and b) really crummy Low VMO names (REVU, EDGR,NRCI) When they bought almost any junky name on offer, Burnham didn't.
So what if instead of a long portfolio they had bought the low risk names and shorted the high risk names. Same names. Same positions. Just short all the names below 55 VMO.
Result: Today at least the long short portfolio would be up 157 bps while the real portfolio is down 3 bps at 1PM. For the last week the hedged portfolio has been turning out portable alpha.