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Defining alternative beta


June 11, 2020

Well-known investment strategies that exploit mispricing in securities markets

The investment industry loves jargon. Rather than communicating ideas in a succinct manner, jargon is instead used to create a roadblock to understanding, often to disguise the value or uniqueness (or lack thereof) of a strategy. Unfortunately, the “Alternative Beta” space is particularly rife. And somewhat perversely, we believe the increasing acceptance of alternative beta investment strategies is leading to a worsening of the situation.

A clear and concise definition of Alternative Beta is required, put simply we define Alternative Beta as:
Products that invest in well-understood, diversifying long/short investment strategies that seek to exploit behavioral effects and risk premiums.

These products (or funds) will have low exposure to traditional markets by the long/short nature of the implementation of the underlying strategies. As such we believe these products are, in general, excellent diversifiers to existing market exposures in a portfolio.

The products contain investment strategies that are well-understood and widely-recognized by investment professionals. These strategies aim to earn returns by exploiting market mispricings arising from behavioral effects, capturing risk premiums, or both.

Please see the below document for some examples of these strategies.

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Defining alternative beta PDF .8 MB
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