In this recent article in HFM Week, Andrew Beer offers six reasons why popular alternative beta strategies are more attractive in theory than practice.
Alternative risk premia: six reasons to be careful
Over the past several years, the hot topic among allocators has been whether ‘alternative risk premia’ can provide the diversification benefits of hedge funds, but with lower fees/expenses and daily liquidity.
Disappointingly, this year, many alternative risk premia funds have suffered drawdowns of 6% to 12% – far outside expectations. Alternative premia are rules-based trading strategies – carry, value vs. growth, trend, etc. – that take long and short positions in various instruments in order to capture a specific source of return (risk premia).
Hedge funds often employ these strategies, so the (questionable) intellectual leap is that, therefore, much of hedge fund “alpha” can be captured from premia rather than manager skill.
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