Freeing Alpha from Beta: Enhancing Portfolio Returns with a Portable Alpha Program

By: Phil Green, Merrill Lynch Investment Managers
Published: June 2005 


“Over the past several years, institutional investors have found it difficult to find investments that provide attractive returns. While return expectations for stocks and bonds have diminished since 2001, pension plans still need to pay beneficiaries and endowments still need to maintain spending plans. As a result, many institutional investors have been looking for new ways to enhance returns, such as investing more heavily in alternative investments. Many institutions have also been considering portable alpha strategies, but are unsure how such strategies work and what their benefits are.”

“In the past, alpha was a byproduct of beta asset allocation. Now, to improve the odds for alpha and also have access to as many candidates as possible, alpha must exist as an independent entity. Looking forward, those who stick with the traditional approach to alpha and beta may well fail to meet their return requirements. For those who can accept and adapt to the new investing environment, the reward may be enhanced performance in a lower-return environment.”

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