BettaBeta, brought to you by Nedbank CIB, offers a range of cost-effective beta building blocks and investment solutions. These include benchmark indices, managed portfolios, investment products and related services.
We distinguish ourselves from our peers by the utilisation of a combination of existing and customised beta building blocks to derive lasting solutions for our clients. As a result we have a transparent and rules-based passive fund management style. A combination of allocation to these products and true alpha strategies allows for a significant level of tactical asset allocation possibilities for our clients.
The Core-Satellite approach – How to combine Alpha and Beta?
Traditionally, the distinction between alpha and beta is made along the lines of ‘skill’ (alpha) and ‘exposure’ (beta). Beta in this sense refers to the exposure that a fund must have to adhere to its mandate. It should ideally be broad and diversified, and it should be bought into the fund at the lowest possible cost.
In this regard, it can become a funding base for alpha. Alpha is the reward that should only be paid-for-skill – it is voluntary and it can only be justified if it can be identified as such. It should be flexible and elastic, and be clearly defined sources of excess risk and return that can easily be added or removed as and when necessary. In a nutshell, alpha should be all about performance, and beta about low cost.
According to investopedia.com ‘core-satellite’ investing is a method of portfolio construction designed to minimise costs, tax liability and volatility while providing an opportunity to outperform the broad stock market as a whole. In the South African context indices that would be used for these purposes include the FTSE/JSE Top 40 Index for equities, the BESA GOVI Index for bonds, and the FTSE/JSE SA Listed Property Index for real estate, among others. Additional positions, known as satellites, are added to the portfolio in the form of actively managed investments.
What are the key benefits of the Core-Satellite approach?
By only paying for the true alpha in a portfolio and using beta to achieve diversification, this lowers the overall cost of the portfolio on a weighted basis. It also allows investors to make more targeted decisions in terms of their asset allocation and what they’re seeking when selecting an alpha manager. Passive tools provide more transparent, cheaper building blocks and speed up the process of implementing tactical changes in the portfolio.
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