Post by mrc on Jul 8, 2021 4:51:54 GMT
Hi,
I observed that most of the large value funds are showing negative alpha for the last 3,5, and 10 years, whereas most large growth funds are showing positive alpha. For example, VEIPX, VWNDX, VEIPX, DODGX, OAKMX
I understand Value underperformed Growth in the last 10 years or so, but the alpha is based on the index the fund is using as benchmark, right?
In that case, most of the LV funds use either Russel 1000 value index or S&P 500 Value index or something similar. If entire category and related indices underperformed, why so many Value funds are showing negative alpha. At least those LV funds that beat its bench during this period must have positive alpha, right?
Probably, they are all negative based on this definition "In a nutshell, alpha is the difference between a fund's expected returns based on its beta and its actual returns" Their returns are lesser than what their beta (volatility) indicates during this period. Am I right?
Alpha definition from M*:
In a nutshell, alpha is the difference between a fund's expected returns based on its beta and its actual returns. Alpha is sometimes interpreted as the value that a portfolio manager adds, above and beyond a relevant index's risk/reward profile. If a fund returns more than what you'd expect given its beta, it has a positive alpha. If a fund returns less than its beta predicts, it has a negative alpha.
From Investopedia:
Alpha is a measure of an investment's performance on a risk-adjusted basis. It takes the volatility (price risk) of a security or fund portfolio and compares its risk-adjusted performance to a benchmark index. The excess return of the investment relative to the return of the benchmark index is its alpha.
I observed that most of the large value funds are showing negative alpha for the last 3,5, and 10 years, whereas most large growth funds are showing positive alpha. For example, VEIPX, VWNDX, VEIPX, DODGX, OAKMX
I understand Value underperformed Growth in the last 10 years or so, but the alpha is based on the index the fund is using as benchmark, right?
In that case, most of the LV funds use either Russel 1000 value index or S&P 500 Value index or something similar. If entire category and related indices underperformed, why so many Value funds are showing negative alpha. At least those LV funds that beat its bench during this period must have positive alpha, right?
Probably, they are all negative based on this definition "In a nutshell, alpha is the difference between a fund's expected returns based on its beta and its actual returns" Their returns are lesser than what their beta (volatility) indicates during this period. Am I right?
Alpha definition from M*:
In a nutshell, alpha is the difference between a fund's expected returns based on its beta and its actual returns. Alpha is sometimes interpreted as the value that a portfolio manager adds, above and beyond a relevant index's risk/reward profile. If a fund returns more than what you'd expect given its beta, it has a positive alpha. If a fund returns less than its beta predicts, it has a negative alpha.
From Investopedia:
Alpha is a measure of an investment's performance on a risk-adjusted basis. It takes the volatility (price risk) of a security or fund portfolio and compares its risk-adjusted performance to a benchmark index. The excess return of the investment relative to the return of the benchmark index is its alpha.