I am finding these two strategies similar: Equitizing market neutral long short and alpha beta separation. Both have alpha return from one source and beta return from another source. Also both use long short strategy and long in equity index futures. The only differnece that I could make out from the reading is that alpha beta separation concerns with multi manager funds. Is my understanding correct?
to my understanding, in the market neutral long short strategy, the target is to keep the beta equal to zero, so it’s called market neutral.
however, in the alpha beta separation, it’s not necessary to be market neutral, the overall position can hold positive or negative beta. moreover, as you mentioned, it’s a separation process of giving it to multi-managers.
Alpha-Beta separation by intention has a beta close to 1 ( i.e. market like returns )
neutral long-short tries to have a beta close to zero ( i.e. has little sensitivity to market movements )
for alpha-beta separation, are you sure that beta is close to 1? i thought that final beta will be decided based on the portfolio strategy. i may need to reconfirm again.
beta passive or semi passive (market like) alpha is the active part
Agreed that neutral long-short portfolio will have a beta close to 0 but when you equityize a neutral long-short portfolio using an index future, the beta becomes 1 right?
I second gtam. So its back to "what is the difference in terms of strategy between MKTNUE+EQTZ and ALPHABETASEP?
After reading into it a bit…it appears that the alphaseeking managers are good with thier sector industry which has a different beta characteristic. The equitization brings the beta back to 1.
Alpha Beta sep is a phen where Alpha manager is seperated from a Beta manager.
Please correct me if necessary
Alpha beta separation allows an investor to expand his opportunity to seek alpha beyond his particular benchmark universe instead of only having to select from the managers with his needed strategy. Ex a manager that has benchmark of the sp500 can either select from portfolio managers using sp500 as a benchmark or using portable alpha can select a portfolio manager with high alpha and short that benchmark index to negate the market risk and then go long their needed benchmark with low cost index fund. Thats how I understand it, it allows you to capture alpha from any portfolio manager as long as you can insolate their benchmark. This is probably not the right model but think of Port returns as P=A+S+M and S+M = Benchmark B so P=A+B if you can short the B then investing in the portfolio leaves P=A+B-B =A then find the right index B to go long.