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‘Systematic Alpha’ Investing

Tim Atwill discusses Parametric’s innovative investment approach – known as “systematic alpha” – and its application to emerging market and international equity investing.

Q: WHAT IS “SYSTEMATIC ALPHA” AND HOW DOES IT DIFFER FROM OTHER STYLES OF INVESTING?

Atwill: Asset management has traditionally been split into two arenas: active and passive. With active, a portfolio manager attempts to outperform a given benchmark. Views on individual securities are typically developed through fundamental research or quantitative techniques, and these views are generally reflected in the portfolio with positions that often deviate from the stated benchmark. In contrast, passive managers attempt to match a benchmark’s performance by holding relatively static positions and minimizing transaction and operational costs. 

Parametric has pioneered a third style of asset management that falls between these two extremes. “Systematic alpha,” as we call it, relies on three basic tenets:

  1. Outperformance is sought via the structure of a rules-based portfolio
  2. Portfolios are built to emphasize diversification with no fundamental views expressed at the individual securities level
  3. Portfolios are constructed in a transparent fashion

Simply put, we aim to generate alpha by tempering volatility through a combination of portfolio rebalancing and diversification. In addition, our approach may help reduce the impact of market inefficiencies and lower transaction costs by limiting portfolio turnover.

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Tim Atwill
Tim Atwill, Ph.D., CFA

Head of Investment Strategy

 

 

Tim Atwill
Tim Atwill, Ph.D., CFA
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