1. Newsroom
  2. “Smart Alpha” – a new way to tap into active investment strategies
Menu
Insight 15.03.2021

“Smart Alpha” – a new way to tap into active investment strategies

“Smart Alpha” – a new way to tap into active investment strategies

A new partnership between UBP and amLeague, a specialised index provider, allows investors to combine the advantages of active investment management with those of passive index tracking. 


The aim is to benefit from the investment calls of some of the best active managers for European equities, independently of whether markets rise or fall.

What is Smart Alpha all about?

The investment world is, by and large, split into two camps. On the one hand, there are strategies that follow the average performance of a specific market, represented by an equity benchmark index such as the Eurostoxx50 or the S&P 500, to name two well-known examples. These strategies mechanically replicate the weightings of individual stocks within the tracked index for the composition of their portfolios, without reflecting the opinion of any portfolio manager. In other words, they are simply weighted according to the market capitalisation of the benchmark they follow. The main advantages are the transparency of the investment approach, since it is easy to understand, ample liquidity, meaning ease of investing in or disinvesting out of these strategies, and low management fees, which represent the cost investors have to pay their investment managers. These passive strategies perform in line with the underlying index, and this performance is known as the market beta.

On the other side of the spectrum we have active investment managers who follow a particular conviction or a specific set of selection criteria, with the aim of outperforming the wider market, i.e. beating the main market indices, by picking stocks of companies that they expect to perform better than others.

These strategies tend to be more thematic in nature, reflecting each investment manager’s individual approach to selecting the best investment opportunities.

The excess return that these managers obtain over the underlying market average is known as alpha.

The innovative investment solution proposed by UBP thanks to its partnership with amLeague allows clients to combine the best of both worlds. They can thereby benefit from the investment calls of some of the best active managers of European equities, while at the same time retaining the benefits of passive index trackers, notably the transparency and liquidity. Additionally, this strategy does not feature a double layer of costs as is the case with funds of funds. This is what we call Smart Alpha.

How does it work?

The strategy is based on amLeague’s ranking of the best investment ideas of a range of asset managers. Thanks to this knowledge, an investable index has been developed that tracks these active investment ideas. At the same time, the index’s exposure to the wider equity market, i.e. the beta, is removed, or “hedged” out, so as to give investors the pure “alpha” of the active managers’ investment calls. This makes the strategy “market-neutral”, that is to say, it does not rise and fall with the ups and downs of the broader equity market but instead follows the performance of the individual ideas of the underlying investment managers.

Thus, clients gain access to multiple active investment styles, while retaining the transparency and liquidity of passive solutions. One and the same investment style or theme rarely remains a top alpha generator forever. Rather, alpha tends to shift among investment approaches over time. The advantage of this strategy is that it can move between investment styles in pursuit of the highest alpha generators at any given time. The strategy is denominated in euro, being invested in 50 Eurozone stocks, selected in order to represent the best European equity portfolios.

Alternative Investments

Tommaso_Sanzin_150x150.jpg
Tommaso Sanzin
Managing Director
Alternative Investment Solutions
Go to his Linkedin profile.

Expertise

Impact investing - Contributing to a more sustainable future

What are the key features of impact investing?

Read more

Most read

Insight 10.06.2021

COVID-19: UBP keeps you up to date

Since this coronavirus appeared, UBP has provided its clients with guidance and support as we all tackle this unprecedented global health crisis. We give you regular updates on everything from our own safety protocols and the recommendations issued by the authorities to our experts’ latest analysis on the effects of the pandemic on the world economy and financial markets.

Insight 24.03.2021

Agility: at the heart of our discretionary management

Your goals and aspirations are unique – so is our approach to discretionary portfolio management.

Insight 02.02.2021

Healthcare IT: A shift with no turning back

Although technology in the healthcare industry is still in its infancy, its future will be one of improved health outcomes, increased efficiency, more precise clinical interventions and, ultimately, reduced healthcare expenditure for governments and patients alike.


Further reading

Insight 28.07.2021

What ESG factors mean for bonds in EM

The creditworthiness of an emerging market country is often thought to be determined simply by its ability to service and repay debt.

Insight 27.07.2021

Japan: Lukewarm Olympics, consumption to recover in H2

Asia Macro - The Olympics will take place despite the State of Emergency (SOE) being extended until August 23. International spectators have been banned and consumer sentiment remains subdued, with few people supporting the event.

Insight 20.07.2021

Impact investing engages with a wider public

Impact investing increasingly tells a story that investors can relate to, as Rupert Welchman pointed out at the recent Sustainable Investment Festival.