An alpha generator is any type of security which when added to an existing asset portfolio generates returns that outperform the pre-selected benchmark despite the level of risk. Foreign stocks, government bonds, and other types of derivatives can become an alpha generator for as long as they can produce excess returns without the additional risks as measured by volatility or downside volatility. The mathematical rate of the return is usually calculated based on the growth of earnings per share.
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Alpha may intertwine with the beta such that both are risk ratios used to calculate returns. Comparing alpha and beta would provide investors some sense as to how low the fund will go when the market goes bearish and how high it will reach when the market turns bullish.
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Alpha generation is considered the holy grail of investing given its critical nature in determining stock performance. In practice, it is extremely difficult to consistently reach positive alpha generation because of the fact that no one can tell which type of security will fare well in the market in the long run. Though the alpha generation space is a tough area to operate in, there are financial firms like Bradley Reifler’s Forefront Capital which specialize in generating outsized risk adjusted returns by means of proprietary allocation models. These firms are committed to empowering portfolio managers with efficiencies for high alpha capture and access to a broader and more institutionalized investment base.
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Bradley Reifler is the CEO and founder of Forefront Capital, a global investment firm that focuses on helping the underserved cross-section of portfolio managers gain access to instruments that support high alpha generation. Visit this website to learn more about the financial services of the company.