Factors, funds and performance chasing

In its absolute simplest definition, alpha is just the return of a portfolio over its benchmark: α = portfolio return - benchmark return

However, being managers who emphasise 'factor investing', we do not consider this a true

reflection of manager outperformance. We will get into why that is later, for now, let's just term the definition set out above as 'naïve alpha'.

Given that most advisers would hear the term alpha in relation to managed funds, let's focus on that particular investment product and consider the dangers of just paying attention to, or chasing naïve alpha.