Strategy Overview

For decades, “beta” has represented the returns from broad asset class exposures while “alpha” was the incremental performance investors expected from active portfolio management. Recently, sophisticated investors have begun to recognize that many sources of returns that were once considered alpha actually represent exposures to systematic risk factors. These risk factors may include tilts towards select geographies, sectors, or styles – such as value, size, volatility, and momentum.

Over the past fifty years, the ability to explain portfolio performance has improved, from the days when risk wasn’t even measured to measuring it with just the market returns of CAPM to the Fama French three-factor model. Today, many investors understand that what used to be considered security selection can actually be explained now as factor bets across a wide range of explanatory variables, allowing sophisticated investors to continue to pursue active strategies while still benefiting from the best quantitative tools available.

This insight fundamentally reclassifies the alpha from numerous active managers as a form of beta. It also creates an investment opportunity: strategies that were once considered the domain of high-priced, tax-inefficient active managers can now be achieved using passive portfolio techniques that track underlying risk factors. The result is that alpha-seeking strategies can be created with all the advantages of traditional indexing – namely low costs, tax-efficiency and transparency.

Aperio’s Thematic Beta strategy gives investors the ability to custom-build an equity portfolio to any specification they choose. It enables investors to implement popular alpha-seeking equity strategies – for example, high quality stocks or global stocks with an emerging markets overweight – while delivering three key benefits over active managers and targeted ETFs: (1) lower fees, (2) higher after-tax returns through tax-loss harvesting, and
(3) greater transparency, including the ability to precisely tailor the replicated strategy to fit into an existing portfolio.

Investors can achieve the returns of alpha-seeking strategies with the benefits of passive management. The investment landscape has evolved – and Aperio is leading the way.

Overpaying for beta?

Are you paying alpha fees for beta returns?  Contact us to analyze your active long equity investments and see how much of your investments could be delivered in a more cost and tax-efficient manner.

Implementing Quality

A quality investment strategy can be delivered by strategic selection and implementation of quality factors that seek stable, low leverage, profitable companies. What many don't realize is that you can capture quality in a more tax-efficient and transparent way than existing active strategies.

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