According to legend, John Maynard Keynes, the founding father of deficit spending, was also an ace investor.Now, a new study from two Cambridge University professors has proved it.
David Chambers and Elroy Dimsons found that over 22 years personally overseeing the King’s fund at Cambridge University, Keynes equity picks averaged a +15.21% annual return, compared with +8.08% for the UK equity market during the same period, 1924-1946.
He favoured commercial and industrial firms, and metal mining stocks, the authors write, these sectors averaging 1/3 of his portfolio. Toward the end of his career he began to favour mid-cap and smaller stocks.
But Keynes was no lightweight. His tracking error versus the UK equity index was 12.6%, “a substantial
active risk compared to the typical portfolio today.”
Technically, Keynes had net losses of -£663,7000 over the lifetime of the fund. And the authors calculate his Jensen’s alpha or abnormal return was not quite as impressive — the authors calculate it at 8.02%.
Arguably more interesting, the authors pin Keynes as one of the first institutional equity investors in the world.
The equity allocations of British insurance companies — the largest institutional investors of the age — were just 3% in equities in 1920 and only increased to 10% by 1937.
Keynes, meanwhile, averaged 74% equity weight during the period studied.
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