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					Renaissance Institutional

Equities Fund

MONTHLY COMMENTARY May 2009 (page 1)

RIEF experienced modest, positive gains in May in all Series. Nonetheless, the S&P 500 meaningfully outperformed RIEF for the third month in a row. RIEF is expected to underperform dramatic monthly gains in the index but it is disappointing that we did not capture a larger fraction of the market gain. RIEF’s performance can again be understood in terms of its risk aversion. The recent, unusually large return differential between high and low beta stocks continued but at a less pronounced pace in May. Consequently, RIEF continued to underperform the index but experienced improved absolute and relative performance compared to both March and, especially, April. RIEF helps investors control risk through lower volatility and diversification away from index-like investments. Such diversification naturally leads both to periods of dramatic out-performance, such as last year, and periods of dramatic under-performance, such as this year. The patient RIEF investor has been and should continue to be rewarded with higher average return and lower risk than is achievable through conventional long-only investing. Research was productive in May. We installed a new predictive signal of unusually high statistical significance and discovered another promising signal that will be explored further in the coming weeks. We are striving to improve both the quantity and quality of the information shared with our investors. We understand that investors can adopt a longterm view of RIEF only if they have sufficient information to understand that short-term disappointments do not necessarily reflect fundamental problems with the underlying strategy. Our first step toward improved transparency is an improved monthly investor letter. Along with increased disclosure of portfolio statistics, you will find a more in-depth and precise discussion of the drivers of monthly performance.

Gross Sector Allocation§
Basic Materials Energy Consumer Noncyclicals Consumer Cyclicals Consumer Services Industrials Utilities Transportation Healthcare Technology Telecommunications Commercial Services Financial -15.0%
-25% -15%
§

-14.7% -8.5% -1.6% -12.2% -4.1% -6.2% -0.1% -0.8% -8.5% -6.1% -1.7% -2.2%

4.1% 2.4% 16.4% 12.0% 5.3% 1.4% 3.7% 7.6% 31.8% 51.1% 15.6% 13.0% 17.3% -5% 5% 15% 25% 35% 45% 55%

Long and short gross sector weightings are for the static portfolio at the close of 5/31/09 using the most current Barra model.

Monthly Statistics**
RIEF Onshore LLC
Series A May Return Annualized Return
*

RIEF Offshore LP
Series D 0.80% -5.05% 11.46% 0.36% Series A 0.61% -4.52% 10.73% 0.89% Series B 0.75% -3.66% 10.39% 1.75% Series C 0.73% -5.09% 11.23% 0.32% Series D 0.75% -5.60% 11.54% -0.19% S&P 500 5.59% -5.41% 17.07% -

Series B 0.80% -2.98% 10.36% 2.43%

Series C 0.77% -4.50% 11.16% 0.91%

0.66% -3.81% 10.70% 1.60%

Standard Deviation* Delta*‡

Risk/Return Since Inception**
0% -1% -2% -3% -4% -5% -6% -7% -8% -9% -10% 0% 5% 10% 15% 20% 25% 30%
5% 30% 25%

One-Year Rolling Standard Deviation**
S&P 500

A nnua liz e d R e turn

R IE F L L C

Series B R us s e l l 1000 R us s e l l 2 0 0 0 G r o wt h R us s e l l 2 0 0 0 V a l ue

20%

S& P 500

15%

10%

RIEF LLC - Series B

0%

Jan-07

Jan-08

Sep-06

Sep-07

May-07

May-08

Sep-08

Jan-09

Jul-06

Jul-07

Jul-08

A nnua liz e d S ta nd a rd D e via tio n

*

Since Inception, 8/1/05. Charts based on monthly data and are net of fees for a continuing investor. Some series were not populated with investors since inception. The results displayed are, nonetheless, based on actual trading, gross profits being adjusted in each case by the applicable fees. ‡ The difference in return of RIEF and the S&P 500 since inception.
**

3F2B8E7D29917CA9350F05EF288B508137D3B4E9

Renaissance Technologies LLC

800 Third Avenue, New York, NY 10022-7604

p: (212) 821-1502

f: (212) 848-1033

e: rief@rentec.com

May-09

Nov-06

Nov-07

Nov-08

Mar-07

Mar-08

Mar-09

Renaissance Institutional
The volatility and beta controls of RIEF favor lower volatility/lower beta stocks in the long portfolio and higher volatility/higher beta stocks in the short portfolio. This feature has helped RIEF maintain low volatility both in its live track record since inception and during simulation since 1992. However, this very feature has been a key driver of relative underperformance versus the S&P 500 over the past 3 months. During the months of March, April, and May, high beta stocks outperformed low beta stocks to an uncharacteristic extent. Using Barra betas, we bucketed all of the stocks in our trading universe into beta deciles. By taking cap-weighted average betas and multiplying by actual S&P returns (demonstrated by the solid black line on the graphs to the right), higher beta stocks would have been expected to outperform lower beta stocks by roughly 40%. However, in these past three months those same higher-beta stocks (dotted line) have in fact outperformed by a margin of 120%. This 3-fold difference indicates a short-term phenomenon that we believe is unsustainable. At the same time, it makes RIEF’s recent underperformance understandable. A similar trend was evident during calendar year 1999, another year in which RIEF’s simulations dramatically underperformed the index. Over the next year, all of those relative losses were recouped.

Equities Fund

MONTHLY COMMENTARY May 2009 (page 2)
Returns by Beta Decile* Period: March 2009 - May 2009*

140% 120% 100% 80% 60% 40% 20% 0% 10 9 8 7 6 5 4 3 2 1

Weighted-Average Actual Return by Beta Decile Weighted-Average Expected Return

Period: January 1999 - December 1999*
100% 80% 60% 40%

Gross Long/Short Return Attribution**
Long Portfolio Return Short Portfolio Return Total RIEF Return 9.8% -9.0% 0.8%

20% 0% 10 9 8 7 6 5 4 3 2 1

Weighted-Average Actual Return by Beta Decile Weighted-Average Expected Return

Quarterly Market Cap Exposure†
100% 90% 8 0% 70% 60% 50% 40% 30% 20% 10% 0% Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09
1.0

Three-Year Rolling Empirical Beta‡
Small Cap
0.9 0.8 0.7

Mid Cap

0.6 0.5 0.4 0.3

Large Cap

0.2 0.1 0.0

Sep-08

Jan-09

Jul-08

Feb-09

*

Charts based on daily log data. Gross of fees for the month of May 2009. † Using Russell Index methodology, as of each quarter-end. ‡ Relative to the S&P 500 based on daily gross of fees log returns.
**

3F2B8E7D29917CA9350F05EF288B508137D3B4E9

Renaissance Technologies LLC

800 Third Avenue, New York, NY 10022-7604

p: (212) 821-1502

f: (212) 848-1033

e: rief@rentec.com

May-09

Aug-08

Nov-08

Oct-08

Dec-08

Mar-09

Apr-09


				
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posted:6/8/2009
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