PT - JOURNAL ARTICLE AU - Martin L Leibowitz AU - Anthony Bova TI - Gathering Implicit Alphas in a Beta World AID - 10.3905/jpm.2007.684748 DP - 2007 Apr 30 TA - The Journal of Portfolio Management PG - 10--18 VI - 33 IP - 3 4099 - https://pm-research.com/content/33/3/10.short 4100 - https://pm-research.com/content/33/3/10.full AB - 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 “total beta exposure’ 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 “hunted,’ the implicit alphas are passive and non-zero-sum in nature, and rather can be “gathered’ through the allocation process.TOPICS: Security analysis and valuation, portfolio construction