By Sabrina Callin
ISBN-10: 0470118083
ISBN-13: 9780470118085
As an unique innovator of the transportable alpha notion, PIMCO has been dealing with a growing number of diverse transportable alpha concepts for traders due to the fact 1986. And now, with Portable Alpha concept and Practice, the PIMCO workforce stocks their large reports with you. choked with in-depth insights and professional assistance, this trustworthy source offers an informative examine transportable alpha and key similar strategies, in addition to unique dialogue at the some ways it may be utilized in real-world occasions
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Extra resources for Portable Alpha Theory and Practice: What Investors Really Need to Know
Example text
However, as c01 JWBK108-Callin 12 January 25, 2008 7:14 Char Count= PORTABLE ALPHA THEORY AND PRACTICE discussed in the sixth chapter, it is imperative that investors do not evaluate alpha strategies in a vacuum, as the capital invested in a portable alpha strategy is exposed to the risk factors that are inherent in both the alpha strategy and the derivatives-based beta exposure. Therefore, it is critical for investors to have a reasonably thorough understanding of the primary risk factors and risk factor ranges in each component, in addition to understanding the potential value-added that may accrue to investors as a result of tactical risk factor allocation and security selection.
Of course, borrowing rates vary and some portable alpha programs involve additional borrowing costs, liquidity facilities, lines of credit and the like, in order to maintain the levered market exposure at times when the alpha strategy cannot be tapped for required margin flows or collateral calls associated with the derivatives. It is also true that any excess return over the beta market return produced by a portable alpha approach may or may not be equal to the alpha. Rather, the resulting alpha will depend on the risk inherent in the alpha strategy in addition to the correlation between the beta market and the alpha strategy, factors that should be carefully contemplated by investors when estimating the possible distribution of returns on the capital invested.
In the case of the pension plan example, success is largely dependent on the active stock managers’ ability to outperform the equity market, even though the ultimate goal is bond market outperformance. In the case of the StocksPLUS strategy, success is dependent on PIMCO’s ability to outperform the borrowing cost associated with the stock index futures. Importantly, however, even though the first application takes place at the investment portfolio or plan level and the second at the investment strategy level, both approaches can be broken Positive return* Active Short-Term Bond Manager Return (A + B) + Negative return* c02 Long Equity Futures Return (C – B) = Portable Alpha Strategy Return (A + C) Alpha Alpha (A) Money Market (B) Return + Equity Market (C) = Return (A) Equity Market (C) Return Money Market (B) Return *Assumes equity market and treasury returns are positive.
Portable Alpha Theory and Practice: What Investors Really Need to Know by Sabrina Callin
by Joseph
4.5