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White Paper

Portable Alpha: Why Now?

February 20, 2025 - Peter Hecht Jeffrey Cao

As stock market valuations continue to rise and expected returns correspondingly fall, many investors are hoping to rely more on alpha from active management to make up for a potential future return gap. Unfortunately, long-only active management has struggled during recent history. We review why portable alpha may be an attractive alternative solution in today’s market environment. We also discuss what aspects of a portable alpha solution are important for investors to consider when selecting between implementations.

Quick Takes

Exploring Portable Alpha

September 23, 2024

White Paper

Portable Alpha: Still A Great Solution For Improving Return Outcomes

July 30, 2024 - Portfolio Solutions Group

In the face of lower-than-average expected returns for equities, some investors may be considering adding active management to their equity allocations. However, the evidence supporting active long-only equities has long been underwhelming. We review an alternative approach – portable alpha.

Alternative Thinking

Can Machines Time Markets? The Virtue of Complexity in Return Prediction

May 6, 2024 - Portfolio Solutions Group

Common wisdom has suggested that small, simple models are best suited for market timing applications, given finance’s “small data” constraint and naturally low predictability. However, we show that complex models better identify true nonlinear relationships and therefore produce better market timing strategy performance. We validate this "virtue of complexity" result in three practical market timing applications.

Journal Article

Levering Up to Do Good: Direct Long-Short Investing and Charitable Giving

April 23, 2024 - Stanley Krasner Joseph Liberman Nathan Sosner Sydney Filler

We use historical strategy simulations to evaluate the advantages of donating appreciated stock in the context of tax-aware long-short factor strategies. We find long-short strategies exhibit several advantages over long-only investments.

White Paper

Is Your Equity Hedge Fund Portfolio Resilient Enough for Uncertain Times?

February 6, 2024 - Michele L. Aghassi Chris Doheny Charles Fattouche Erik Wong

We analyze the historical macroeconomic sensitivity of traditional asset classes and major hedge fund strategies. We show that the average hedge fund is unlikely to provide meaningful diversification during periods of macro uncertainty, which are also typically difficult for traditional assets. However, long/short low-risk strategies have tended to exhibit low macro sensitivity.

Key Design Choices in Long/Short Equity

December 5, 2023 - Portfolio Solutions Group

Investors are looking for resilient sources of return in the face of mounting headwinds for equity markets. Long/short and market-neutral equity strategies deserve consideration. We review the case for allocating to long/short equity and address several key choices faced by investors and by managers.

Perspective

Shorting Counts

February 23, 2022 - Cliff Asness

Man Group recently wrote an op-ed titled “Short-selling does not count as a carbon offset.” Of course we agree it doesn’t. But the headline is quite misleading if taken to mean shorting has no role in the fight to reduce carbon emissions. Shorting does exactly what it’s supposed to do – raise the cost of capital to the emitters, even more so than divestment.

Perspective

Shorting Your Way to a Greener Tomorrow

September 7, 2021 - Cliff Asness

It would be an understatement to say there is confusion in the industry about the use of shorting in an ESG context. When it comes to calculating a portfolio’s ESG score, we have heard arguments ranging from "ignore the shorts” to “net them against longs,” and, my favorite as it’s creatively insane, “pretend the shorts are actually longs.” This note explains why it is critical that shorts be properly accounted for, so that investors can use shorting to reduce carbon exposure, to get to net zero or to achieve other ESG goals.

White Paper

Understanding the Tax Efficiency of Relaxed-Constraint Equity Strategies

April 5, 2019 - Nathan Sosner Ted Pyne Swati Chandra

A guide to tax-aware relaxed constraint strategies that also tries to enlighten investors on the nuances around tax benefits by comparing different tax-aware strategies with an equity beta of one.