I’m going to be posting a few concepts that may help everyone here and also to help myself remember some things that I’ve struggled to recall on demand. If I’ve missed anything or got something wrong, please let me know. Beta-Alpha Separation - An investor builds a portfolio by buying an index fund or ETF to provide systematic risk exposures of the market while attempting to add alpha via long/short investment strategy such as pairs-trade. Advantages: - Provides the investor with exposure to styles/asset classes outside of the systematic asset classes. - Better Identifies the cost of each - Allows for better management of risk since they are better identified via the separation of beta and alpha. Disadvantages: - Not all long/short investments have zero systematic risk - It’s difficult to short in emerging markets, making this strategy hard to implement - Institutional investors may have restrictions on short selling, further reducing the ability to implement the strategy I believe that covers it… If I’ve missed anything or you have something to add, please chime in. THanks.
To add on can’t you get exposure to the index in the way of a futures contract on the index and manage the duration actively for beta/alpha seperation or is that something else I am thinking of?
s23dino Wrote: ------------------------------------------------------- > To add on can’t you get exposure to the index in > the way of a futures contract on the index and > manage the duration actively for beta/alpha > seperation or is that something else I am thinking > of? this is one of the ways for enhanced indexing (the other is just change the weights of each stock in your portfolio, making active bets Vs the index)
hala_madrid Wrote: ------------------------------------------------------- > s23dino Wrote: > -------------------------------------------------- > ----- > > To add on can’t you get exposure to the index > in > > the way of a futures contract on the index and > > manage the duration actively for beta/alpha > > seperation or is that something else I am > thinking > > of? > > > this is one of the ways for enhanced indexing (the > other is just change the weights of each stock in > your portfolio, making active bets Vs the index) that is what i was thinking about, it is used for active indexing
So you can’t creat alpha/beta seperation like that? How else can you get alpha/beta seperation besides long index fund and long long/short fund?
you are long A, and want to keep your alpha, and get beta of B + you short futures on A´s benchmark + you buy futures on B´s benchmark so basically, you are always long something with alpha at the begining. You offset beta shorting futures (this way you isolate alpha), and get beta exposure to a different market/index buying futures on it the other things mentioned in your post: 1. you are long cash + futures, and play with the duration of cash to enhance return 2. you are long the same stocks as the index, but in slightly different % are just the 2 was to do enhance indexing
Long/short is just one way of getting alpha without introducing more beta. You could combine a long position in an actively managed portfolio with a short position in index futures. This would give you alpha too.
Yes… there are a few ways, but the key is that you acquire Alpha without adding Beta.