@article {Leibowitz10, author = {Martin L Leibowitz and Anthony Bova}, title = {Gathering Implicit Alphas in a Beta World}, volume = {33}, number = {3}, pages = {10--18}, year = {2007}, doi = {10.3905/jpm.2007.684748}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Most U.S. institutional portfolios have surprisingly similar betas and similar overall volatilities. Beta assumes an implicit beta for each asset class that is based on its co-movement with U.S. equities. This {\textquotedblleft}total beta exposure{\textquoteright} to equities, as the primary risk factor in most portfolios, accounts for 90\% or more of volatility even in highly diversified funds with a low explicit allocation to equities. The implicit beta values determine corresponding implicit alphas that can add to expected fund return and yet have a minimal impact on total fund volatility. These implicit alphas are passive, in that there is no presumption of a positive outcome from direct active investment. Unlike the zero-sum active alphas that presume superior investment skill and must be {\textquotedblleft}hunted,{\textquoteright} the implicit alphas are passive and non-zero-sum in nature, and rather can be {\textquotedblleft}gathered{\textquoteright} through the allocation process.TOPICS: Security analysis and valuation, portfolio construction}, issn = {0095-4918}, URL = {https://jpm.pm-research.com/content/33/3/10}, eprint = {https://jpm.pm-research.com/content/33/3/10.full.pdf}, journal = {The Journal of Portfolio Management} }