Portfolio Balancer

The portfolio balancer allows the investor to rebalance his portfolio to reflect the views of hedge funds and billionaires.


When to use the Portfolio Balancer

For instance, an investor might already have a portfolio of stocks that he is invested in. He likes his portfolio and wants to stay invested in it, but he is unsure about the allocation of funds. Has he placed too much money into one stock versus another? The portfolio balancer can give insight by showing how hedge funds have allocated their money into these stocks. If the investor's allocation is vastly different from that of the hedge funds, the investor might want to consider rebalancing some stocks in his portfolio. Of course, small differences are expected and probably don't warrant any change.

Another common application of the porfolio balancer is when an investor wants to add a stock (or a couple of stocks) to his portfolio and wants an idea of how much to invest in these new stocks relative to some stocks already in his portfolio.

The 3 views of the Portfolio Balancer

Note there are 3 views of the portfolio balancer. The unadjusted weights view will show how much weight hedge funds have allocated to a stock, but will not take into account the number of funds that have invested in a stock. This typically causes popular stocks to dominate and have a large weight, leaving less popular stocks (which could be great investments) with smaller weights.

The adjusted weights view tries to remedy this issue by adjusting the weights for the number of funds that have invested in the stocks. This levels the playing field so that popular stocks don't dominate too much.

The last view simply shows the number of hedge funds invested in each stock to give a general idea about its popularity. In practice all three views could be used in conjunction to gain different insights and make an informed decision.

The Portfolio Balancer

For illustration, below we use the portfolio balancer on three stocks: Amazon, Ali Baba, and Vangaurd's Emerging Markets ETF (which has the symbol VWO). Notice how in the unadjusted view, AMZN and BABA tend to dominate. This is expected due to the popularity of those stocks. However, in the adjusted view we can see that VWO becomes the largest box. Thus it seems that on average, hedge funds are placing higher bets on VWO, despite AMZN and BABA having a higher allocation overall among hedge funds. This is supported by the third view, which shows that the number of funds investing in AMZN alone is approximately 8 times those investing in VWO.

The above discussion makes sense and is expected. First of all, fewer funds invest in emerging markets than in a popular stock like AMZN, hence we expect AMZN to be larger in the first and third view. Furthermore, those funds that do invest in this kind of ETF are likely to have a large chunk of their money in the ETF. This is because an ETF represents a basket of stocks, hence they think of it as investing the money in all those stocks. For instance, VWO invests in over 4,000 stocks. Thus funds would invest a larger portion of their money in the ETF, larger than funds typically invest in a single stock like AMZN. This explains why VWO becomes larger in the second view.

Currently the portfolio balancer uses all the hedge funds tracked by Hedge Follow in its calculations. In the future we will add the ability to select groups of your favorite funds, as well as other useful filters (for instance, one might want to rebalance his portfolio to reflect the views of Warren Buffett and a few other hedge funds that he likes).