ActiveBeta Indexes : Capturing Systematic Sources of Active Equity Returns

by Khalid Ghayur; Ronan G. Heaney; Stephen A. Komon; Stephen C. Platt; Foreword by: Andrew W. Lo

• ISBN13: 9780470632963
• ISBN10: 0470632968
• Format: eBook
• Copyright: 2010-02-01
• Publisher: Wiley

Summary

An informative guide offering new and innovative ways to think about active management and investingActiveBeta Indexes presents exciting new research that shows how above-market returns can be achieved in a low-cost, transparent, and efficient fashion. Active Betas reflect fundamental investment principles that have long been the foundation of active equity returns, but are commonly masqueraded as investment skill, or alpha. This groundbreaking book lifts the veil to uncover the common sources of active returns and reveals their beta-like properties.Developed by leading investment practitioners at Westpeak Global Advisors, ActiveBeta Indexes introduces Active Beta sources and explains how the behavior of short- and long-term earnings growth gives rise to systematic sources of active equity returns. Details a new index framework and research findings that could change the face of active portfolio management Presents patent-pending innovations for constructing style indexes and informationally-efficient active portfolios Explores the historical performance of ActiveBeta IndexesWealth advisers, consultants, pensions and endowments, and other institutional investors will find the intellectual honesty of ActiveBeta Indexes a refreshing perspective on the active management industry. They will also find it a useful guide to a more strategic allocation of their risk and management fee budgets - a growing necessity in these challenging times.

Table of Contents

Foreword

Preface

Background

The Evolution of Market Indexes

The Early Days of Indexing

The Inception of the Mutual Fund Industry

Enter Academia

The Advent of Index/Passive Mutual Funds

Index Mutual Funds for the Public

Conclusion

The Evolution of Equity Style Indexes

Empirical Challenges to Financial Theories

Theoretical Explanations of Anomalies

Establishing Equity Styles

Equity Style Index Methodology

Pitfalls of Current Equity Style Indexes

Conclusion

ActiveBeta Conceptual Framework

Introducing Active Betas

Defining Active Betas

Identifying the Drivers of Equity Returns

Verification

Exploring the Behavior of Return Drivers

Behavior of Short-Term Earnings Expectation and the Link with Price Momentum

Analysis Methodology

Relationships Studied

Decomposing Momentum Returns

Conclusion

Appendix: Regression Analysis and Correlation Coefficient

Behavior of Long-Term Earnings Expectation and the Link with Value

Relationships Studied

Investment Horizon of Value Strategies

Implications for Stock Risk Premium

Decomposing Value Returns

Conclusion

Pricing and Persistence of Systematic Sources of Active Equity Returns

Pricing of the Systematic Sources of Active Equity Returns

Persistence of the Systematic Sources of Active Equity Returns

Momentum, Value, and Risk Aversion

ActiveBeta Framework: A Summary of Relationships

ActiveBeta Indexes

ActiveBeta Index Construction Methodology

Investment Process Indexes

Objectives of Investment Process Indexes

Conflicting Objectives

Transparency, Understanding, and Rationale of the ActiveBeta Momentum Index

ActiveBeta Index Construction Process

Differences in Construction between ActiveBeta Index and Other Public Style Indexes

Achieving Objectives

Conclusion

Appendix: ActiveBeta Index Construction Process Example

Historical Analysis of ActiveBeta Indexes

ActiveBeta Index Construction Process Overview

ActiveBeta Index Performance: Highlights

ActiveBeta Index Performance: Detailed Analysis

ActiveBeta Index Exposures

Conclusion

ActiveBeta Index Applications

Style Investing: A New Framework

Performance Attribution: Decomposing Active Manager Returns

Portfolio Structuring: Revisiting the Alpha-Beta Return Separation

Performance Benchmarking

Research and Analysis

Investment Vehicles

ActiveBeta Customizable Solutions

Alternative Solutions for Capturing Active Betas

ActiveBeta Custom Indexes

ActiveBeta Custom Solutions

A Word on Traditional Active Management

Conclusion

Concluding Remarks

Disclosures

Bibliography

About the Authors

Index

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