White Paper

Absolute Return Overlays: The Power Of Diversification On Returns

By Marco Aiolfi, Lorne Johnson, John Hall & Edward J. Tostanoski III

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Overview

Expected returns on multi-asset portfolios may be improved materially with the implementation of a portable alpha overlay. Unlike other alternative allocations, portable alpha overlays can be implemented without changing underlying portfolio allocations and/or existing active managers.

  • A portable alpha overlay can provide an uncorrelated and unfunded separate source of excess returns generated by alpha management.
  • A well-designed portable alpha overlay strategy with a low correlation to traditional asset class and private market exposures can provide diversifying, additive returns when asset owners need them most.
  • Our case study shows that when an overlay targeting 2% risk is introduced, it can add roughly 1% alpha to a well-diversified portfolio*.

*Results not guaranteed

References

Marco Aiolfi

References

Lorne Johnson

References

John Hall

References

Edward Tostanoski