Portable Alpha Solutions
 
 
 
 
Faced with the prospect of lower returns from the world's equity and fixed income markets, QMS Advisors has been implementing investment vehicles, including Portable Alpha solutions, which allow investors to add incremental returns to their investments in a wide variety of asset classes.
 
QMS Advisors has conceived models that disaggregate the dynamic risk exposures alternative asset classes are exposed to, and has devised systems that identify managers who can consistently provide uncorrelated performance onto the returns earned by any predefined equity or fixed income index; therefore allowing our clients to earn potentially attractive returns above and beyond what these indices can provide on their own. For investors looking to increase their portfolio’s ex-ante Sharpe Ratio, portable alpha is an attractive solution to incrementally increase returns without significantly increasing risks.

Portable alpha solutions are extremely flexible, and can be implemented in a variety of ways. Portable alpha solutions often are added to customized benchmarks that closely match our clients’ liability or spending needs. QMS Advisors helps clients implement portable alpha solutions using bundled and unbundled service providers, and add value to virtually any market index. The solutions we recommend are designed and tested so as to keep the alpha as uncorrelated as possible to the predefined indices, and as stable as possible across market cycles.

Defining Alpha, Beta and implementing a Portable Alpha strategy:
 
There are two key sources of excess return in an investment portfolio
 
 
  • Market returns (beta): tendency of an investment to move with the market
  • Skill returns (alpha): average return earned in excess of the investment’s excess market return
  • Epsilon: portfolio’s risk that is not associated with market risk
 
  • Alpha is measurable, distinguishable and associated with “skill”
    • Focus placed on identifying strategies with high probability of obtaining alpha, while beta is obtained easily and at low cost
Basic implementation of an efficient Portable Alpha Solution:
In summary, Portable Alpha is a mechanism by which portfolio construction enables our clients to separate alpha from beta for deployment in other strategies; primarily skill based, uncorrelated strategies.