Whitepaper - April 2020

Adding Alpha by Subtracting Beta: A Case Study on How Quantitative Tools Can Improve a Portfolio’s Returns

During turbulent risk environments, it is imperative that fundamental portfolio managers learn to understand factor exposures to know what is driving their portfolios’ returns. By avoiding the performance drag that results from certain risk bets they can deliver higher alpha. Fundamental managers can leverage quantitative tools to help identify and reduce the impact of those unintended bets, while still maintaining their investment views and goals. In this paper, we’ll use a “real world” portfolio to illustrate how quantitative tools can improve a portfolio’s realized return and information ratio by reducing exposures to factors on which the manager did not have a view, while maintaining the focus on stocks the manager expected to outperform.

Authors

Qontigo Research Team