About Us Philosophy Alpha/Beta Separation
| Alpha/Beta Separation: Enhanced Asset Allocation |
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Sophisticated institutions recognize that optimal asset allocation can be achieved by pairing beta-generating passive index investments with non-correlated alpha investments in alternatives, such as hedge funds and private equity.
Separating alpha and beta sources increasingly has replaced more traditional asset allocation strategies centered on picking long-only, alpha-seeking active investment managers. Alpha is a measure of a portfolio's actual excess returns and expected performance given its level of risk (as measured by Beta). Beta reflects the sensitivity of a portfolio's return to fluctuations in the market (in this case, as measured by the S&P 500® Index). Unfortunately, alpha is scarce and many studies have found that the average asset manager's performance often is below the benchmark. This is exactly why many institutions are turning to new and innovative strategies, such as "Portable Alpha" that seeks to distinguish between the two key sources of investment returns (alpha and beta) in an effort to maximize overall returns. IndexIQ has developed investment products designed as building blocks for more effective asset allocation. These strategies provide investors efficient access to both alpha and beta sources typically reserved only for institutional investors. |
Asset allocation does not eliminate the risk of experiencing investment losses.
