MPI Blog

While the RIEF fund has opened up a bit to investors, there’s virtually no information available on the Renaissance Futures RIFF fund started in 2007. In his Nov. 2008, testimony before the House Committee on Oversight and Government Reform, Jim Simons said about RIFF that it:

“…is a slow trading fund, investing in commodities, currencies, bonds, and stock indices, and is designed to deliver an attractive return at relatively low volatility. …RIFF, started 13 months ago, did well during its first nine months but has been challenged by the turbulence of this fall, during which its returns were disappointing“.

There’s also generic information available at www.wsj.com obtained by WSJ from RIFF marketing materials:

“RIFF is a modestly-leveraged, slow-trading, global futures fund designed to provide substantial risk-adjusted returns, uncorrelated to US and global equity markets and with medium to low correlation to other asset classes… Targets holding times between nine and 12 months… The RIFF system is completely automated, with the exception of part of actual trade execution. Proprietary algorithms evaluate investment opportunities regularly in an effort to improve the portfolio“.

All of the above makes a good case for a dynamic factor analysis of RIFF returns.

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Michael Markov Hedge Funds, Main hedge fund analysis, Jim Simons, Renaissance RIEF, Renaissance RIFF, returns-based style analysis, style analysis

Berkshire Hathaway’s sector classification suddenly became important to many investors after BRK.B (Berkshire’s B Share Class) was added to the S&P 500 on February 12, 2010. Because BRK.B was classified as a Financial, XLF, the most popular Financial Sector ETF, now has a significant weight in BRK.B. Other popular financial sector ETFs, like VFH, have smaller, though still significant, allocations to BRK.B. Since these ETFs are liquid, inexpensive and relatively precise, they’re widely used to make and hedge financial sector bets. However, if a large holding in a Financial Sector ETF doesn’t behave like other Financials, the ETF risks losing considerable precision.

The question many investors are now asking is: Does BRK.B actually belong in the Financial sector? If BRK.B behaves like a Financial, for all practical purposes (including portfolio construction and risk management) it should be treated as a Financial. However, our analysis of BRK.B’s historical returns shows it behaves more like a Consumer Staple stock than a Financial.

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Kushal Kshirsagar Main, Research Berkshire Hathaway, BRK, BRK classification, BRK.B