Hacker News Reader

Comment by skolos | Hacker News Reader

Anyone who looked at investing knows that you don't compare pure returns, you compare return per risk (say Sharpe ratio or some other measure). 10% return might be truly impressive if it does not involve much risk.

EDIT: For people who look first at comments - the article compared some endowment funds returns with broad market returns and found that funds did not outperform the market. My argument that this is flawed comparison since it ignored risk.

View on HN

I work in investing and take issue with the standard deviation of returns being taken as equivalent to "risk". For example there were many quant funds that had great Sharpe ratios up until 2008, after which they got completely annihilated. But I have nothing else to add. It is hard to measure risk.

I agree that standard deviation might not be the best measure of risk. That's why there are many other measures exist that try to address issues. But you cannot compare returns without looking at risk.

Comparing fund performance is a tricky business and often you can cherry pick methodology easily to support any conclusion you desire.

I'd be surprised if the actively managed funds had less risk than the market.

The way to look at is that actively managed funds often define their risk profile so that LPs can correctly allocate their money in the risk buckets they are searching for.

How do you respond to the Fama and French paper on luck versus skill in mutual fund performance? They showed that on average, active managers hold a market portfolio, and since they take a cut, ETF portfolios make more money; there was no evidence of skilled managers getting better returns for the investor. Do you believe that institutional managers are better than mutual fund managers?

I agree with many points in Fama and French paper. However its conclusions are based on data more than 20 years old. Lots of things has changed since then. I would be curious to see the results with more recent data.

Some of the data sets used end in 2002 or 2006, and I am not aware of any reason why we would expect different findings from more recent data. Using data from the great recession and the current market situation may also be more confusing than elucidating.

It gave a handwavy argument that risk for the endowments was higher, but no numbers.

The university with the highest total endowment suffered along with the market. It would be an obvious statement to say that Harvard suffered along with the rest of the market. Of course, they did better than the biggest losers. One could always say they could have done worse and put all their money in Citi.

I have to admit that I have no clue whether the endowment funds did better or worse than an index fund tracking the stock market but I imagine if one has $30B to invest (and you depend on dividends to run a third of one's operations) then surely you can't admit to be completely risk averse without reducing ambitions.

> In a sign of the economic times, Harvard has sent a letter to its deans saying that the university’s $36.9 billion endowment fund lost 22 percent of its value in the last four months and could decline as much as 30 percent by the end of the fiscal year on June 30.

http://www.nytimes.com/2008/12/04/business/04harvard.html

According to http://www.wolframalpha.com/input/?i=s+and+p++500+august+200..., the S and P 500 lost 30% during that time. How much is it worth to only decline 22%? IIRC most outperformance over the long run comes from avoiding losses.

This NY Times article is from 2008. How is it relevant to the post or your comment now, in 2016?

You would think that these massive funds can afford to take on more risk than your average Vanguard investor. So they should be seeing better returns. If they truly have less risk than Vanguard then they're investing too conservatively.

Reply on news.ycombinator.com