Fri, Jan 20, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Alternative Market Briefing

Other Voices: Two unanswered questions about alternative betas

Thursday, March 13, 2014

amb
Andrew Beer
By: Andrew Beer, Beachhead Capital Management

Alternative betas, or risk premia, are established investment strategies that are simple enough to automate with a computer but too complicated for most investors to implement directly. For instance, you can program a computer to buy "value" stocks and short "growth" stocks, but few investors choose to do this on their own. The same argument can be made for merger arbitrage, currency carry trades, momentum, trend following, commodity roll trades and other common trading strategies employed by hedge funds.

The advertised appeal of alternative beta products is that they have a low correlation to traditional assets and have a high-expected return – the practical definition of a valuable diversifier. With widespread pressure to bring down the cost of investing, many investors are considering whether to invest directly in alternative betas to avoid high hedge fund fees and improve liquidity. Having examined a broad range of these products, we conclude that there are two (big) unanswered questions. Each arguably undercuts the diversification thesis.

1. What are expected returns?

There is a paradox in the alternative beta diversification thesis. Expected returns for alternative risk premia are supposed to be high since most investors do not or cannot invest in them directly. However, the proliferation of products should lead to capital inflows and hence drive down returns over time.

This is not a small issue. Ta......................

To view our full article Click here

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing - This hedge fund made 37% betting on banks in 2016 and remains bullish after the Trump rally, Hedge fund legend David Einhorn is making a big bet on GM, After impressive 85% return in 2016, hedge fund looks to Canadian gold producer, small banks[more]

    This hedge fund made 37% betting on banks in 2016 and remains bullish after the Trump rally From Forbes.com: Can bank stocks continue to rise after a 28% surge in the KBW Bank Index in 2016, fueled by a post-election rally as stock pickers returned to the beaten down sector? Forget the s

  2. SWFs - China sovereign wealth fund CIC plans more U.S. investments[more]

    From Reuters.com: China Investment Corporation (CIC), the country's sovereign wealth fund, is looking to raise alternative investments in the United States due to low returns in public markets, its chairman said on Monday. CIC will boost its investments in private equity and hedge funds as wel

  3. Some hedge funds strong start in 2017 nice contrast to 2016[more]

    With the 2016 HSBC Hedge Weekly performance rankings in the books - a year in which the same leader-board entries pretty much dominated unchallenged throughout the year - comes a new leader board that is a hard-scrabble mix of hedge fund styles and categories. What is clear after but a few short wee

  4. Macro hedge funds and CTAs outperform in December on strong dollar[more]

    Komfie Manalo, Opalesque Asia: The last month of 2016 saw risk assets climbing higher, as part of expectations that the new U.S. administration will remove barriers to growth and investment, Lyxor Asset Management said. December also saw the Fed hik

  5. Opalesque Exclusive: Roxbury credit events UCITS gathers more assets[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: The Roxbury Credit Events Fund, launched in September 2015, was up 4.24% in 2016, having returned seven positive months during the year. The managers raised