Portable Alpha
Capturing Greater Excess Returns through Portable Alpha
Under traditional portfolio management, an investor’s strategic asset allocation determines the alpha opportunity set for the entire portfolio. Given most portfolios’ concentration in highly efficient markets like large cap U.S. equity and core fixed income, the opportunity to earn significant and/or sustainable excess returns is severely impaired. Furthermore, rising correlations among all risky assets is making the benefits of portfolio diversification highly elusive. As a result, overall portfolio returns can fall short of expectations and volatility may be higher than what is expected. With the investment technology available today, asset allocation no longer needs to determine a portfolio’s alpha opportunity.
The MASS Group utilizes state-of-the-art mathematical modeling and computer simulations to make trading, hedging and risk management decisions. In addition to computational power, our work requires experience and facility with financial derivatives, such as futures, forwards and swaps, used to gain or eliminate exposure (or “beta”) to an asset class or market cheaply and efficiently.
The MASS Group takes the concepts of global diversification and financial engineering to the limits of current technology: it separates the alpha from the beta return components of ING investment products managed around the globe and then re-assembles them into well-diversified multi-strategy portfolios that deliver the precise mix of manager alpha and market beta that institutional clients seek. ING’s suite of portable alpha solutions, called ING Absolute Alpha, is fully customizable and is available with various native benchmarks.
Portable Alpha Advantages
- Higher potential alpha can be earned and ported from Inefficient markets and sources
- Better diversification than single manager solutions
- More efficient portfolio construction and risk budgeting
- Simplified strategic investment policy changes
- Effective return generating component of a liability driven investment program
Building Blocks of ING Absolute Alpha
