Tue, Jun 30, 2015
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. Opalesque Exclusive: New systematic strategy managed alongside research firm outperforms S&P500[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: An emerging CTA manager explains how he runs his strategy, which is based on an index produced by a research firm. Peter Turk is head of

  2. Larry Robbins' hedge fund Glenview buys 1m Tenet Healthcare shares[more]

    Komfie Manalo, Opalesque Asia: Glenview Capital Management said it bought an additional 979,482 shares at Tenet Healthcare Corp valued at $53.80 million, raising its stakes in the healthcare services company to 15.16%, reported

  3. Hedge funds panic over Greece[more]

    Komfie Manalo, Opalesque Asia: Some investors are in panic mode as Greek Prime Minister Alexis Tsipras announced Sunday night that the banks and the stock market would be closed Monday, said

  4. Alternative investment industry could grow to $13.6tln in five years[more]

    Komfie Manalo, Opalesque Asia: Leading auditing and advisory group PwC said that the global alternative investment industry, which includes hedge funds, private equity and real assets, is set to increase to $13.6tln within the next five years. "Be

  5. Qbasis gets $200m-plus investment in 'black swan' hedge fund[more]

    From Reuters.com: A hedge fund that more than doubled clients' money during the 2008 financial crisis has attracted more than $200 million from an investor aiming to cash in on fresh ructions in global markets. Qbasis Invest has secured the investment from Britain's Omada Capital, Florian Wagner, wh

 

banner