Differentiating Fixed Income Performance with Portable Alpha
Sep 20th, 2006 | Filed under: Portable Alpha & Alpha/Beta SeparationBy: Joseph F. Benning, The Chicago Board of Trade
Published: July 2006, AIMA Journal
Excerpts:
“Plan sponsors can disaggregate the returns of fully funded investments into alpha and beta components to better align investment objectives with a manager’s performance. But implementation is easier said than done.”
“While the tools for replicating equity beta exposure have been readily available for some time, the task of efficiently replicating generalized fixed-income exposure has been more problematic.”.
“Active trading of fixed-income based ETF’s is picking up steam, but those instruments tend to be narrow-based, representing sectors of fixed income markets, rather than the market as a whole. In addition, fixed-income sector indices carry implicit idiosyncratic risk related to the behavior of the yield curve.”
“Isolating alpha from beta within a strategy or asset class and then neutralising it requires a fair degree of sophistication.”
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