Renaissance RIEF April 2009 Performance Puzzle

Back in 2007, we published a research report “The Law of Large Numbers“ with an analysis of the Renaissance Technologies RIEF fund and  showed how a similar strategy would have performed during previous recessions and major market downturns. Thus, it shouldn’t come as a surprise that the RIEF has lost about 17% through April and 8-9% in April alone as it was reported by The Wall Street Journal and various blogs. Yet, both the investors and the media seem puzzled by the fund’s results while the fund management itself has yet to provide an explanation of what has happened. The only clue was the statement from Dr. David Lippy as recorded in the May 13 Renaissance RIEF investor telephone conference that “high volatility stocks have outperformed low volatility stocks.” Interestingly, this comment does confirm in layman’s terms our 2007 findings about the strategy. I strongly encourage performance measurement professionals and investment research analysts to read both the letter and the call transcript. It’s a fascinating reading with not a single request from investors of a basic attribution analysis for this $20B US equity portfolio as if we’re back to pre-MPT days 50 years ago.