Here’s How Active Managers Squander Alpha

New research shows that active managers do in fact generate alpha, but have a hard time keeping it because they hold positions too long. This according to an article in Institutional Investor. The study comes from Essentia Analytics, a firm that examines fund manager decisions based on behavioral science. The article reports, “The firm found that for all the hype about active manager underperformance, these managers actually do generate alpha ‘well in excess of the… Read More

Commentary: Smart Beta vs. Alpha-Beta Combination

A recent article in CFA Institute suggests ways to combine alpha and beta factor strategies to create a “simple and clean equity portfolio” that offsets some of the “innate human weaknesses that sabotage our investment decisions.” According to the article, factor investing has generated positive excess returns—alpha—over time. Specifically, between 1926 and 2019, “a portfolio that combines small, cheap, and outperforming stocks” would have outpaced the broader market (data from Kenneth French) while one comprised… Read More

Bill Gross Says Odds of Outperformance Have Plunged

Bill Gross, who defined his career by beating benchmarks in the bond market, says the days of outperformance are largely over. This according to an article in Bloomberg. “There are things to look at that still exist in the market that can generate alpha, although the probabilities of generating historical alpha in the same way are much less than they were,” Gross told Bloomberg in a recent interview. He attributes this in part to lower… Read More

Which Generates More Alpha, Mutual Funds or ETFs?

How does the alpha generated by ETFs compared to that of actively managed mutual funds? The question is addressed in a recent WealthManagement article. The article cites Morningstar data that shows only 54 active ETFs (20 percent of total) generated positive alpha over the past 3 years. WealthManagement screened more than 25,000 portfolios to find ETF-like characteristics (i.e. open to investors with low minimum investment threshold), and its analysis showed that the top performers were technology… Read More

Steve Cohen’s Head Performance Coach Talks Portfolio Manager Mindset

As the PGA tour winds down and the Olympic Games approach, it seems only fitting to share some perspective on the investment world from a famous sports psychologist. Dr. Gio Valiente has worked with many of the top PGA Tour players to help them improve their mental game. A Yahoo Finance article from earlier this month describes what Valiente (who recently joined Steve Cohen’s $11 billion Point72 Asset Management as head performance coach) views as… Read More

Fidelity’s Low-Priced Stock Fund Manager Delivers Market-Beating Returns

Joel Tillinghast, manager of the Fidelity Low-Priced Stock fund, “owns one of today’s best investment records,” according to a profile proceeding a recent interview published in Barron’s. In the 26 years he has managed the fund, it returned an average of 13.7% annually (more than 4% higher than the S&P 500). Tillinghast is restricted by the fund’s charter to buying stocks priced at under $35 per share. He explains: “the original idea was that low-priced stocks… Read More

Adding Alpha Through Opportunistic Investment

In a recent article on, Anthony Brown of Mercer Investments suggests that “one way to add alpha [especially in the current environment] is through a more opportunistic approach to investing – seeking to take advantage of market volatility and dislocations.” He outlines two approaches to developing such an approach within a firm – internal and external. He notes that “the major roadblock to an internal approach is the governance burden” because trustee groups may… Read More

Securing Alpha From Small-Cap Stocks

  Vitali Kalesnik and Noah Beck of Research Affiliates provide a detailed analysis of how investors may be able to capture alpha in the small-cap sector.  They liken investing in small-caps to fishing in a pond where alpha is available, but the fisherman’s strategy and skill determines whether one can “reel it in.” They suggest that “small size as a standalone source of premium” is not reliable, but contend that “[e]ven if small companies are… Read More

Generating Alpha by Focusing on Active Fund Managers

Gary Miller, a manager with Frontier Asset Management, uses a complex statistical formula in an effort to identify the mix of “active managers” who outperform over time.  “We come to this with three core beliefs,” Miller said, “active fund managers can add value; we can identify those managers in advance; and they will continue being successful.” The complex process starts with identifying managers and funds who are focused on generating strong returns to investors and… Read More

Have Computer Algorithms Eliminated Alpha?

Today’s markets are dominated by computer-based trading and complicated algorithms that can profit from very small inefficiencies in the market over split second periods of time. Many argue that these computer systems have made outperforming the market considerably more difficult. Yale professor Robert Shiller looks at this argument in his latest article for Capital Finance International. Shiller looks at the recent book “The Incredible Shrinking Alpha”, which argues that ““the hurdles to achieving alpha [returns… Read More