Navigating the World of Alternative Beta Investments

Alternative beta investments offer a way to tap into non-traditional sources of return, such as momentum and size factors.

These investments can provide diversification benefits by capturing returns that are not correlated with traditional asset classes.

They can also be used to implement specific investment strategies, like value or low-volatility investing.

Alternative beta investments are typically based on quantitative models and are often implemented through exchange-traded funds (ETFs) or other liquid instruments.

They offer a cost-effective way to access these strategies, with lower fees compared to traditional hedge funds.

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Alternative beta strategies offer a cost-efficient, transparent, and liquid way to gain access to hedge fund beta, replicating market factors using systematic, transparent, and cost-efficient strategies.

Academic research has shown that hedge fund exposure can be replicated using market factors, making alternative beta strategies a compelling option for investors.

State Street Global Advisors' Global Alternative Beta Strategy is designed to deliver innovative solutions for investors, with a focus on risk-adjusted returns, downside protection, and diversification.

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The strategy takes beta exposures directly through exchange-traded instruments, offering weekly unrestricted liquidity and full transparency, and avoiding hedge fund-specific and operational risks.

The Blue White Alternative Beta strategy aims to track the systematic factor exposures of 'smart money' managers, carefully screened and monitored on a regular basis.

The strategy has a return target of 9% to 11% per annum net-of-fees, with a monthly return volatility of 6% (annualized), and is 'absolute return seeking', meaning it does not take directional views or make discretionary positioning decisions.

To manage tail risk, the strategy employs positively convex lookback straddles, which mitigated the risk during market turbulence.

Here's a comparison of the Blue White Alternative Beta strategy with other alternative beta strategies:

The Blue White Alternative Beta strategy's low bond-like volatility (5.57%) sets it apart from other alternative beta strategies, which have much higher volatilities, almost equity-like.

Risk Management is crucial in alternative beta strategies.

Investors who adopt alternative beta strategies must carefully manage risk to avoid significant losses.

A key risk management technique is diversification, which can help reduce portfolio volatility.

According to research, a diversified portfolio of alternative beta strategies can reduce risk by up to 30%.

Investors should also regularly monitor their portfolios to ensure they remain aligned with their investment objectives.

Rebalancing the portfolio as needed is essential to maintain the desired level of risk.

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Alternative beta replication strategy takes beta exposures directly through exchange-traded instruments, offering weekly unrestricted liquidity and full transparency.

This approach avoids hedge fund specific and operational risks, such as those experienced by LTCM and Amaranth.

By separating market-driven beta returns and skill-based alpha returns, investors can improve net returns and receive them individually at competitive fees.

This separation allows for more transparent and efficient investment management, reducing the risk of losses due to hedge fund specific issues.

Alternative beta is a way to capture the benefits of hedge fund investing without the high fees and illiquidity. It's a cost-efficient, transparent, and liquid way to access hedge fund beta.

Academic research has shown that hedge fund exposure can be replicated using market factors, making it a viable alternative. This means you can get the risk-adjusted returns and downside protection of hedge funds without the operational complexity.

State Street Global Advisors has a systematic, transparent, and cost-efficient hedge fund beta strategy that's designed to deliver these benefits. Their experienced investment team has a deep understanding of beta and how to harness it.

Here are the key benefits of hedge fund beta exposure:

Investing in alternative beta is a smart move, but it's essential to understand the risks involved. As Andrew Wickham, CFA, Senior Investment Manager, notes, "Investing involves risk including the risk of loss of principal."

Liquid Alternative Beta aims to outperform the broader hedge fund industry. It's a bold goal, but one that's achievable with the right strategy.

The strategy targets an annualized volatility of 7-9%, which is relatively low compared to traditional hedge funds. This means investors can expect more stable returns.

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Liquid Alternative Beta aims to limit drawdowns, which is crucial for investors who can't afford to see their investments decline significantly. By doing so, it provides a more predictable and stable investment experience.

Here's a brief summary of the investment objectives:

By focusing on these objectives, Liquid Alternative Beta provides investors with a unique investment opportunity that's both stable and potentially high-returning.

The alternative beta space is crowded, with many players vying for attention. This competition has led to a wide range of strategies and factor exposures.

One way to gauge these differences is through multivariate regression analysis, which was used to examine the factor exposures of alternative beta funds and hedge fund indices during the turbulent period of July and August 2007. The results of this analysis are striking.

The Blue White Alternative Beta strategy stands out from the crowd, employing positively convex lookback straddles as non-linear factors and tail risk mitigation vehicles. This unique approach is a key component in explaining the major differences in recent performances and risk.

These lookback straddles are a crucial part of the Blue White Alternative Beta strategy, and they play a significant role in mitigating downside risks.

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Academic research has shown that only a small portion of hedge fund returns comes from alpha return sources, and the majority is attributed to market-driven beta returns, with over 80% of returns coming from beta.

The high fees charged by hedge funds, typically 5% to 7% per annum, result in low net returns to investors.

Beta replication provides a way to reduce risks, restrictions, and fees, and thus improves net returns, liquidity, and transparency.

It offers an economically meaningful way to define and measure beta and alpha returns.

The identification of factors in beta replication models is conducted ex-ante and without data mining, and all performance tests have been computed out-of-sample.

The approach is transparent and based on financial economic modelling published in numerous academic articles.

The Blue White Alternative Beta strategy combines a wide range of trading strategies and systematic beta exposures to various markets into one single fund.

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The positions are complemented by a series of lookback straddles that pick up non-linear returns and momentum, and provide mitigation of possible drawdowns in adverse market conditions.

The strategy has no other benchmark and does not take directional views or make discretionary positioning decisions other than those dictated by the volatility constraints and some risk management considerations in extreme stress scenarios.

The Blue White Alternative Beta strategy has performed much better during market turbulence than other alternative beta strategies and hedge fund indices.

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