What’s it, All About Alpha.
Mar 24th, 2007 | Filed under: Alternative Beta & Hedge Fund Replication
Okay, so we shifted a comma over a little. But this week’s Economist contains a column that caught our eye here at All About Alpha. The piece, entitled “What’s it all about, alpha?” acknowledges the rising importance of alpha-centric investing:
“It is the fashion these days to separate beta (the systematic return delivered by the market) from alpha (the manager’s skill). Investors are happy to pay high fees for the skill, but regard the market return as a commodity. Distinguishing the two is, however, difficult.”
The column goes on to question whether too much beta is even a problem since there is naturally a lot of value in he selection of the right betas.
“…alpha sceptics often attribute eye-catching returns to style bias, such as favouring stocks with a high dividend yield.
“But should they be biased against style bias? After all, the only portfolio utterly free of bias would be one that included the entire market.”
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