The relaxation of the long-only constraint within equity portfolios and the subsequent move into an active extension “120/20 strategy” can lead to material improvements in both alpha returns and alpha/tracking error (TEV) ratios. These potential benefits can be estimated by combining an alpha ranking system, a position weighting function, and a tracking error model.Wednesday, May 23, 2007
Portfolio Strategy: Alpha Returns and Active Extensions
The relaxation of the long-only constraint within equity portfolios and the subsequent move into an active extension “120/20 strategy” can lead to material improvements in both alpha returns and alpha/tracking error (TEV) ratios. These potential benefits can be estimated by combining an alpha ranking system, a position weighting function, and a tracking error model.