Fri, Nov 28, 2014
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. Unlucky Paulson & Co. rebrands $1.6bn Recovery Fund after 13% drop[more]

    From Businessweek.com: A maturing U.S. economic recovery is prompting Paulson & Co. to change course. The $19 billion hedge fund firm, led by billionaire John Paulson, told investors on a conference call this month that the Paulson Recovery Fund will be renamed Paulson Special Situations Fund on Jan

  2. Opalesque Roundtable: Islamic Finance races ahead with Sukuk, the first managed account platform, and foreign demand[more]

    Komfie Manalo, Opalesque Asia: A number of developments took place within Islamic finance in the past years, including the launch of a Islamic managed account platform and the further growth of the sukuk space that saw this instrument evolve from being a type of an ABS security that was rarely

  3. CTAs , event-driven strategies lead hedge funds recovery in mid-November[more]

    Komfie Manalo, Opalesque Asia: November’s performance proves to be in sharp contrast to the previous month, with equities further consolidating their upswing last week, according to the latest Lyxor Asset Management’s Weekly Brief. CTA funds als

  4. Fund Profile - A complex hedge fund strategy works for United Technologies[more]

    From Institutionalinvestor.com: Reports that portable alpha is dead have been greatly exaggerated, as Mark Twain might have phrased it. Another Connecticut Yankee, giant United Technologies Corp., is gearing up to grow its successful, nearly decade-long portable-alpha program. The UTC strategy took

  5. Opalesque Exclusive: The unintended consequences of Basel III[more]

    Benedicte Gravrand, Opalesque Geneva: Bijesh Amin, co-founder and managing director of Indus Valley Partners (IVP), a technology solutions and services firm focused on the alternative asset management industry, has recently observed