How To Get Statistically Significant Alpha In A Hurry: Financial Advisors' Daily Digest

by: SA Gil Weinreich

Summary

MFS Investment Management argues active management can consistently deliver alpha; Mark Hebner says investors would be better off seeking beta.

Ronald Surz says investors need not wait decades to determine statistically significant alpha; he offers “microwave alpha,” a quick way to measure manager skill.

Jack Waymire gives five reasons why mobile-optimized websites are no longer a luxury for financial advisors.

To frightened investors who sense something bad is due after a seven-year bull market and amidst a wobbly economy, MFS Investment Management's commercials touting a "significant advantage to active management" may be striking just the right chord.

These investment pros are working to reduce "downside volatility" and to "consistently deliver alpha," says the investment firm's one-and-a-half-minute commercial on the power of active management.

But of course, not everybody's having it. RIA Mark Hebner, a proponent of indexing, applies statistical tests to MFS' fund lineup and suggests just one out of 87 funds has any alpha to offer (and even that one could be a fluke, Hebner further argues). He concludes that investors would be better served seeking beta.

Hebner has previously argued that it could take something like a century to evaluate investment skill in a statistically significant way.

Comes along SA contributor Ronald Surz, an innovative thinker, and proposes a method to deliver statistical significance in years rather than decades: "microwave alpha," he calls it. This quick-cooking alpha is achieved through portfolio simulations:

"The breakthrough determines statistically significant success in the cross-section rather than across time… A portfolio simulator creates all the portfolios the manager might have held, selecting stocks from a custom benchmark - thousands of portfolios… To state an extreme example, a return of, say, 1000% is significant, and you don't have to wait 50 years to declare it significant."

With no further ado, we've got many other advisor-relevant stories to start your week with:

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