Is Alpha Dead?

Is Alpha Dead? by Maz Jadallah, AlphaClone

Life is hard if you’re a stock picker.  Really hard.  Active fund average annualized returns have lagged further and further behind their passive benchmarks for the domestic large cap and small cap equity categories (Figure 1).

Analyzing hedge fund and institutional portfolios tells the same story.  A naïve strategy that follows the twenty largest holdings quarterly (equal weighted) across the 500 funds tracked by AlphaClone shows consistently declining excess returns relative to a total market factor benchmark since 2000 (Figure 2).

[drizzle]

While average monthly excess returns (or alpha) is positive at 0.36%/month, the...