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diversication. The next page provides statistics that offer context for Technology -6.6% 49.3%
thinking about correlations during the last twelve months.
Telecommunications -1.1% 15.1%
Monthly Statistics**
RIEF Onshore LLC RIEF Offshore LP
Series A Series B Series C Series D Series A Series B Series C Series D S&P 500
-3%
Russell 2000 20%
-4%
Growth
Russell
-5% 15%
S&P 500 1000
-6%
-7% 10%
Russell 2000 RIEF LLC - Series B
-8%
Value
5%
-9%
-10%
0%
0% 5% 10% 15% 20% 25% 30%
May-07
Dec-06
Oct-07
Aug-08
Jun-09
Jan-09
Mar-08
Jul-06
Renaissance Technologies LLC 800 Third Avenue, New York, NY 10022-7604 p: (212) 821-1502 f: (212) 848-1033 e: rief@rentec.com
Renaissance Institutional Equities Fund MONTHLY COMMENTARY
there are some that had traditionally provided at least a little bit 1.00 0.94 0.98 0.99 0.99 0.48 0.54 0.45 -0.39 0.16 0.32 0.67
of diversication from the S&P but all have been almost 100%
correlated with the S&P in the last twelve months.3 International, 3
Most of the increase in correlation between the S&P and the other US equity
particularly emerging markets, equities have been a poorer indices took place before the nancial crisis and therefore cannot result from
diversication than usual in the last year as have investment it. But this does not detract from the fact that RIEF maintained its correlation
target during epochs when US equity indices were all very highly correlated.
grade bonds and, especially, commodities. Interestingly, the 4
In fact, the correlation is so close to its historical average that some luck is
CTA index correlation has become more negative, making it less involved. There are certainly twelve month periods of perfectly ordinary market
independent of the S&P in a statistical sense but increasing the conditions where RIEF’s correlation to the S&P 500 strays much further from its
historical average.
risk benets of this asset class for portfolios with large S&P beta. 5
RIEF actually has exposure to foreign equities listed on US exchanges (see
Turning to RIEF, two facts are noteworthy. First, given its investable Exposure graph below) but this does not explain RIEF’s ability to maintain its
low correlation to the S&P 500 during the recent crisis. A cap weighted index
universe, RIEF maintained an extremely low correlation to the of foreign equities in RIEF’s investable universe shows a correlation of 95% to
S&P 500 during both epochs. The Fund consistently provides the S&P 500 over the last twelve months.
better diversication than standard US equity indices. Second, Note: Although too complicated to explain in this letter, more mathematically
inclined clients might be interested to know that a similar but fuller story comes
RIEF kept its correlation to the S&P 500 extremely close to its from making one-factor models of the full correlation matrices over the two
low target correlation during a time when this was obviously very epochs. The factor turns out to be an equity factor and loadings to that factor
difcult to accomplish given the data across indices highlighted increase just as one might expect from the above results. The advantage of
the one factor model is that it explains a phenomenon not directly addressed
above.4 During the crisis of the past twelve months, RIEF has above. Without distinguishing the S&P 500, correlations between most asset
provided almost as much diversication from the S&P 500 as classes have increased. For example, US investment grade bonds and emerging
market equities have a historical correlation of only 4% but have had a 41%
either emerging market equities or commodities, a rather correlation in recent times.
impressive result for a fully invested portfolio of US equities.5 Indices used: Russell 1000 Index, Russell 2000 Index, Russell Mid-Cap Index,
1
The epoch ended in 2005 because the RIEF simulation, whose monthly returns Russell 3000 Value Index, Russell 3000 Growth Index, MSCI EAFE Index, MSCI
are provided to clients, ended in 2005. Analysis based on daily returns. Emerging Markets Index, FINRA-Bloomberg US Investment Grade Bond Index,
FINRA-Bloomberg US High Yield Bond Index, S&P GSCI Commodity Index and
2
Using the live RIEF track record-gross of fees. Analysis based on daily returns. NewEdge CTA Index.
0 0.1
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
Q2 09
0.0
May-09
Mar-09
Feb-09
Apr-09
Jun-09
Jan-09
Aug-08
Nov-08
Dec-08
Sep-08
Oct-08
Jul-08
U.S. non-U.S.
Renaissance Technologies LLC 800 Third Avenue, New York, NY 10022-7604 p: (212) 821-1502 f: (212) 848-1033 e: rief@rentec.com