ActiveBeta Indexes
Capturing Systematic Sources of Active Equity Returns
Published on 25. February 2010
216 pages
978-0-470-63297-0 (ISBN)
Description
An informative guide offering new and innovative ways to thinkabout active management and investing
ActiveBeta Indexes presents exciting new research thatshows how above-market returns can be achieved in a low-cost,transparent, and efficient fashion. Active Betas reflectfundamental investment principles that have long been thefoundation of active equity returns, but are commonly masqueradedas investment skill, or alpha. This groundbreaking book lifts theveil to uncover the common sources of active returns and revealstheir beta-like properties.
Developed by leading investment practitioners at Westpeak GlobalAdvisors, ActiveBeta Indexes introduces Active Beta sourcesand explains how the behavior of short- and long-term earningsgrowth gives rise to systematic sources of active equityreturns.
* Details a new index framework and research findings that couldchange the face of active portfolio management
* Presents patent-pending innovations for constructing styleindexes and informationally-efficient active portfolios
* Explores the historical performance of ActiveBeta Indexes
Wealth advisers, consultants, pensions and endowments, and otherinstitutional investors will find the intellectual honesty ofActiveBeta Indexes a refreshing perspective on the activemanagement industry. They will also find it a useful guide to amore strategic allocation of their risk and management fee budgets- a growing necessity in these challenging times.
ActiveBeta Indexes presents exciting new research thatshows how above-market returns can be achieved in a low-cost,transparent, and efficient fashion. Active Betas reflectfundamental investment principles that have long been thefoundation of active equity returns, but are commonly masqueradedas investment skill, or alpha. This groundbreaking book lifts theveil to uncover the common sources of active returns and revealstheir beta-like properties.
Developed by leading investment practitioners at Westpeak GlobalAdvisors, ActiveBeta Indexes introduces Active Beta sourcesand explains how the behavior of short- and long-term earningsgrowth gives rise to systematic sources of active equityreturns.
* Details a new index framework and research findings that couldchange the face of active portfolio management
* Presents patent-pending innovations for constructing styleindexes and informationally-efficient active portfolios
* Explores the historical performance of ActiveBeta Indexes
Wealth advisers, consultants, pensions and endowments, and otherinstitutional investors will find the intellectual honesty ofActiveBeta Indexes a refreshing perspective on the activemanagement industry. They will also find it a useful guide to amore strategic allocation of their risk and management fee budgets- a growing necessity in these challenging times.
More details
Other editions
Additional editions
Software
11/2011
Wiley
€66.80
Shipment within 15-20 days
Khalid Ghayur | Ronan G. Heaney | Stephen A. Komon
ActiveBeta Indexes
Capturing Systematic Sources of Active Equity Returns
Book
03/2010
Wiley
€51.50
Shipment within 10-20 days
Persons
Khalid Ghayur is the CEO and CIO of Westpeak Global Advisors, LP. He was director of research policy, a member of the Global Executive Committee, and chairman of the Index Policy Committee at Morgan Stanley Capital International (MSCI) Barra. Prior to this, he was global head of quantitative research and strategy for HSBC Global Asset Management. He is a CFA charterholder, has served on the Board of Governors of the CFA Institute, and is a former trustee of the CFA Institute Research Foundation. He received an MBA in finance and international business from the Ecole Nationale des Ponts et Chaussees and an MA and BA in economics from the University of Karachi.
Ronan G. Heaney is Director of Research at Westpeak. Before joining Westpeak, he was a software architect with Multum Information Services and a senior software developer at Swiss Bank Corp. He holds an MS in computer science from Purdue University and a BS in applied physics from Dublin City University, Ireland.
Stephen A. Komon is a Senior Portfolio Manager at Westpeak. Prior to this, he was vice president of foreign exchange and commodities at J.P. Morgan & Co., and he also held positions with UBS AG/Swiss Bank and Dean Witter Reynolds. He holds an MBA in finance and accounting from the University of Chicago Booth School of Business and a BS in commerce from the University of Virginia. He is also a CFA charterholder.
Stephen C. Platt is Director of Portfolio Management at Westpeak. Before joining Westpeak, he cofounded and was a senior vice president of Cordillera Asset Management. He holds a BS in finance from the University of Colorado Leeds School of Business and is a CFA charterholder.
Ronan G. Heaney is Director of Research at Westpeak. Before joining Westpeak, he was a software architect with Multum Information Services and a senior software developer at Swiss Bank Corp. He holds an MS in computer science from Purdue University and a BS in applied physics from Dublin City University, Ireland.
Stephen A. Komon is a Senior Portfolio Manager at Westpeak. Prior to this, he was vice president of foreign exchange and commodities at J.P. Morgan & Co., and he also held positions with UBS AG/Swiss Bank and Dean Witter Reynolds. He holds an MBA in finance and accounting from the University of Chicago Booth School of Business and a BS in commerce from the University of Virginia. He is also a CFA charterholder.
Stephen C. Platt is Director of Portfolio Management at Westpeak. Before joining Westpeak, he cofounded and was a senior vice president of Cordillera Asset Management. He holds a BS in finance from the University of Colorado Leeds School of Business and is a CFA charterholder.
Content
Foreword by Andrew W. Lo xi
Preface xiii
SECTION ONE Background
CHAPTER 1 The Evolution of Market Indexes and Index Funds3
The Early Days of Indexing 3
The Inception of the Mutual Fund Industry 5
Enter Academia 6
The Advent of Index/Passive Mutual Funds 7
Index Mutual Funds for the Public 8
Conclusion 9
CHAPTER 2 The Evolution of Equity Style Indexes 11
Empirical Challenges to Financial Theories 11
Theoretical Explanations of Anomalies 13
Establishing Equity Styles 14
Equity Style Index Methodology 16
Pitfalls of Current Equity Style Indexes 17
Conclusion 17
SECTION TWO ActiveBeta Conceptual Framework
CHAPTER 3 Introducing Active Betas 21
Defining Active Betas 21
Identifying the Drivers of Equity Returns 24
Verification 26
Exploring the Behavior of Return Drivers 28
CHAPTER 4 Behavior of Short-Term Earnings Expectation and theLink with Price Momentum 29
Analysis Methodology 29
Relationships Studied 31
Decomposing Momentum Returns 48
Conclusion 51
Appendix: Regression Analysis and Correlation Coefficient 51
CHAPTER 5 Behavior of Long-Term Earnings Expectation and theLink with Value 53
Relationships Studied 53
Investment Horizon of Value Strategies 70
Implications for Stock Risk Premium 74
Decomposing Value Returns 76
Conclusion 79
CHAPTER 6 Pricing and Persistence of Systematic Sources ofActive Equity Returns 81
Pricing of the Systematic Sources of Active Equity Returns81
Persistence of the Systematic Sources of Active Equity Returns89
Momentum, Value, and Risk Aversion 94
ActiveBeta Framework: A Summary of Relationships 99
SECTION THREE ActiveBeta Indexes
CHAPTER 7 ActiveBeta Index Construction Methodology103
Investment Process Indexes 104
Objectives of Investment Process Indexes 105
Conflicting Objectives 108
Transparency, Understanding, and Rationale of the ActiveBetaMomentum Index 110
ActiveBeta Index Construction Process 110
Differences in Construction between ActiveBeta Indexes and OtherPublic Style Indexes 112
Achieving Objectives 114
Conclusion 120
Appendix: ActiveBeta Index Construction Process Example 120
CHAPTER 8 Historical Performance of ActiveBeta Indexes123
ActiveBeta Index Construction Process Overview 123
ActiveBeta Index Performance: Highlights 126
ActiveBeta Index Performance: Detailed Analysis 127
ActiveBeta Index Exposures 149
Conclusion 153
CHAPTER 9 ActiveBeta Index Applications 155
Style Investing: A New Framework 155
Performance Attribution: Decomposing Active Manager Returns160
Portfolio Structuring: Revisiting the Alpha-Beta ReturnSeparation 164
Performance Benchmarking 169
Research and Analysis 172
Investment Vehicles 174
SECTION FOUR ActiveBeta Customizable Solutions
CHAPTER 10 Alternative Solutions for Capturing Active Betas179
ActiveBeta Custom Indexes 179
ActiveBeta Custom Solutions 183
A Word on Traditional Active Management 194
Conclusion 197
CHAPTER 11 Concluding Remarks 199
Disclosures 201
Bibliography 203
About the Authors 207
Index 209
Preface xiii
SECTION ONE Background
CHAPTER 1 The Evolution of Market Indexes and Index Funds3
The Early Days of Indexing 3
The Inception of the Mutual Fund Industry 5
Enter Academia 6
The Advent of Index/Passive Mutual Funds 7
Index Mutual Funds for the Public 8
Conclusion 9
CHAPTER 2 The Evolution of Equity Style Indexes 11
Empirical Challenges to Financial Theories 11
Theoretical Explanations of Anomalies 13
Establishing Equity Styles 14
Equity Style Index Methodology 16
Pitfalls of Current Equity Style Indexes 17
Conclusion 17
SECTION TWO ActiveBeta Conceptual Framework
CHAPTER 3 Introducing Active Betas 21
Defining Active Betas 21
Identifying the Drivers of Equity Returns 24
Verification 26
Exploring the Behavior of Return Drivers 28
CHAPTER 4 Behavior of Short-Term Earnings Expectation and theLink with Price Momentum 29
Analysis Methodology 29
Relationships Studied 31
Decomposing Momentum Returns 48
Conclusion 51
Appendix: Regression Analysis and Correlation Coefficient 51
CHAPTER 5 Behavior of Long-Term Earnings Expectation and theLink with Value 53
Relationships Studied 53
Investment Horizon of Value Strategies 70
Implications for Stock Risk Premium 74
Decomposing Value Returns 76
Conclusion 79
CHAPTER 6 Pricing and Persistence of Systematic Sources ofActive Equity Returns 81
Pricing of the Systematic Sources of Active Equity Returns81
Persistence of the Systematic Sources of Active Equity Returns89
Momentum, Value, and Risk Aversion 94
ActiveBeta Framework: A Summary of Relationships 99
SECTION THREE ActiveBeta Indexes
CHAPTER 7 ActiveBeta Index Construction Methodology103
Investment Process Indexes 104
Objectives of Investment Process Indexes 105
Conflicting Objectives 108
Transparency, Understanding, and Rationale of the ActiveBetaMomentum Index 110
ActiveBeta Index Construction Process 110
Differences in Construction between ActiveBeta Indexes and OtherPublic Style Indexes 112
Achieving Objectives 114
Conclusion 120
Appendix: ActiveBeta Index Construction Process Example 120
CHAPTER 8 Historical Performance of ActiveBeta Indexes123
ActiveBeta Index Construction Process Overview 123
ActiveBeta Index Performance: Highlights 126
ActiveBeta Index Performance: Detailed Analysis 127
ActiveBeta Index Exposures 149
Conclusion 153
CHAPTER 9 ActiveBeta Index Applications 155
Style Investing: A New Framework 155
Performance Attribution: Decomposing Active Manager Returns160
Portfolio Structuring: Revisiting the Alpha-Beta ReturnSeparation 164
Performance Benchmarking 169
Research and Analysis 172
Investment Vehicles 174
SECTION FOUR ActiveBeta Customizable Solutions
CHAPTER 10 Alternative Solutions for Capturing Active Betas179
ActiveBeta Custom Indexes 179
ActiveBeta Custom Solutions 183
A Word on Traditional Active Management 194
Conclusion 197
CHAPTER 11 Concluding Remarks 199
Disclosures 201
Bibliography 203
About the Authors 207
Index 209
