Alpha measures how good a portfolio is compared to the market. For example, if S&P 500 returned 15%, and an equity portfolio returned 18%, its alpha is 3%. Similarly if a bonds benchmark returned 6% and a bonds portfolio returned 8%, its alpha is 2%. More precisely, alpha is that part of portfolio returns that does not come from the market’s performance.
Alpha can come purely from alpha strategies, and from rebalancing methods. Even a passive portfolio can generate alpha from active rebalancing methods, like qplum's daily fractional rebalancing. Read more about how qplum portfolios generate alpha from daily fractional rebalancing.
Beta portfolios are market followers. Almost all mutual funds and ETFs are beta. They give returns comparable to the market - S&P 500, Vanguard bond ETF, etc. Alpha portfolios are uncorrelated with the market, and give returns independent of the market. This means even when the markets disappoint, alpha portfolios can perform well.
qplum is one of the very few robo advisors out there who offer alpha. So how do we have alpha? That's because we use quantitative trading techniques and invest using data and machine learning. In addition, our investments are based on time tested ideas such as momentum, trend following, risk parity, volatility and more. Read more about investing in alpha and beta portfolios.
They can perform better than the markets, and can be positive when the markets are not.
They avoid assumptions like stocks always go up. Thus your money is not left to the market’s vagaries.
During downturns, beta portfolios go through drawdowns. They dip as much as 50% in a downturn like the 2008 crash, which makes it impossible to stay invested for long. But alpha portfolios increase returns, and reduce drawdowns. So you can just invest and forget.
Alpha strategies are the data driven way to make investment decisions. They require financial expertise, and were limited to wealthy hedge fund investors. But times have changed, and they are no longer the privilege of the rich and the famous. Disruptive changes in technology have allowed us to give you the same services in a much more affordable way. We believe this is a small step which becomes a giant leap in the process of democratizing investing.
|Typical Hedge Fund||qplum|
|Lock-in Period||A year Minimum||None|
|Fees||2% fixed fee + 20% of profits||0 - 1% per year|
|Minimum Investment||$5 Million +||$10,000 (Why?)|