Here in the Real World: The Performance of Alternative Beta
Journal of Systematic Investing (Vol.1, Issue 1)
63 Pages Posted: 12 Mar 2019 Last revised: 26 Apr 2021
Date Written: January 25, 2021
We examine the realized performance of alternative beta strategies using a database of returns since 2008. Despite diversified portfolios of risk premia strategies offered by global investment banks achieving satisfactory Sharpe ratios of 0.80 – 1.07 during the decade to 2017, up to two thirds of the performance can be explained by exposure to traditional benchmarks. Furthermore, the outcomes are very sensitive to the estimated all-in fees incurred by investors. We find no evidence of positive alpha in the aggregate industry returns, and document a pattern of time-varying, asymmetric, and statistically significant betas to global equities and bonds. Our results suggest that the poor performance of the strategies in 2018-20 was not an aberration, but rather a continuation of patterns already present in earlier data. The findings are representative of the wider risk premia industry, as returns of managed alternative risk premia funds and those of diversified investment bank strategy portfolios appear closely aligned.
Keywords: Alternative Beta, Risk Premia, Factor Investing, Trading Strategies, Investment Strategies
JEL Classification: G11, G12, G14, G17, G23, G24
Suggested Citation: Suggested Citation