If an investor desires S&P 500 market exposure but has identified a capable active manager of Japanese equities benchmarked to the TOPIX index. The investor can port the manager’s alpha by taking a short futures position in TOPIX and a corresponding long position in S&P 500 futures. The resulting portfolio is S&P 500 plus an alpha associated with the Japanese equity portfolio.
Short future position in TOPIC would create an alpha associated with the Japanese equity portfolio. Wouldn’t long future position in TOPIC would create an alpha too?
You are looking to take advantage of the managers ability to add alpha over the benchmark without taking on additional beta. By shorting out the market (TOPIX) that will just leave you with the idiosyncratic picks of the manager. Long the TOPIX would add beta to the portfolio, which is not the goal