Practical Considerations for Implementing Alternate Beta Strategies

Recent financial crises have exposed the shortcomings of the traditional approach to asset allocation and have led an emerging shift, especially among institutional investors, towards dynamic asset allocation, hinged on the diversification across risk factors. While there are numerous research papers that explore this topic, they tend to be theoretical and it is for this reason we have written a research paper which has a stronger focus on the practical aspects of implementation. (Click here to access the paper)

Key Stages of Decision Making and Implementation


Necessary Considerations prior to adopting alternate beta strategies in asset allocation

  • The adoption of alternate beta strategies is often related to the investment philosophy of an organization and whether it subscribes to the belief that long term risk premia can be harvested to achieve long-term returns.
  • Investors may adopt alternate beta strategies because of their investment objectives and constraints.
  • Are there the commitment and the expertise inside the company to ensure successful implementation?

How to ensure successful implementation?

  • Choose the right mix of factors, in order to achieve investment objectives and meet constraints.
  • Evaluate the diverse offering in the marketplace and choose appropriate strategies and a skilful manager
  • Understand  the secondary exposures of alternate beta strategies
  • Assess the costs of implementation (direct costs, such as commissions, and indirect costs, such as implementation shortfall and portfolio turnover)
  • Measure and monitor performance on an ongoing basis.

The posts on this blog are opinions, not advice. Please read our disclaimers.

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