What is Replication?
Replication is a process of tracking returns of non-investable benchmarks using liquid securities. An example of replication would be the SPY exchange-traded fund which tracks the S&P500 index. In this example, replication is achieved by simply buying every constituent of the index in the right proportions.
Why is Hedge Fund Replication Difficult?
Traditional replication techniques result in playing catch-up with returns. Additional errors may arise from changes in leverage, use of derivatives and exotic instruments, and rapid trading.
Applying Disruptive Technology
At Quantvest, our research team has decades of experience in analyzing hedge fund styles. With Dynamic Style Analysis, we are using a disruptive technology that has successfully aided identification of fraudulent trading, sudden leverage changes, style drifts, and other important risk measures for over a decade. The DSA™ technology, coupled with replication-specific quantitative models, has been able to generate extremely accurate and dynamic results.