This is in sharp contrast to the total return of the fund pickers, as only two participants achieved a negative total return on their portfolio in the seven months to November. The cause for this discrepancy lies in the fact that the MRAR (see figure below) punishes funds (and portfolios) with high volatility, much more so than it rewards those with low volatility.
Hence the far lower adjusted outcomes. In the three months to November, when volatility was much higher than during the previous months, the picture looks even gloomier. The only fund selector who managed to come out of this period with a positive risk-adjusted return is Iceland’s Birgir Stefansson, who also managed to achieve the highest total return over this period.
Stefansson’s portfolio, which has been built around a core of five global equity funds, showed more consistent returns than those of most other fund selectors, generating a MRAR of 3.17%. Overall, only the competition’s leader Rico Bosma and runner-up Henk van Eldik have a higher MRAR.
Stefansson’s preference for global equities is typical for Icelandic fund selectors, who can only invest a limited amount of their asset abroad due to the capital controls on the Icelandic Krona. Because of these limitations they typically choose to invest in an asset class which is as comprehensive as possible.
Low volatility, low return
Some fund selectors composed a portfolio with the explicit goal of keeping volatility as low as possible, for example by selecting hedge funds employing low-beta strategies. Tanja Wennonen-Kärnä, a fund selector from Evli Bank in Finland who selected two long/short debt funds and two market-neutral equity funds, achieved the lowest volatility on her portfolio with an average standard deviation of 0.476. But her choice for safety came at an expense: her total return amounted to only 2.13%.
Alberto Montero from Morabanc in Andorra finds himself at the opposite end. While he is third in the competition with a total return of 12.41%, his standard deviation is the second highest of all at 4.48.