Research reveals doubts about alpha

ForecastingMore than two-fifths of European institutional investors think it is not possible to make reliable forecasts at both the sector and individual security level.

Meanwhile three-fifths of the 101 investors in the survey, commissioned by alternative asset manager Aquila Capital, say the funds they invested in in the past ten years only partially met their expectations or failed entirely.

The results of the survey indicate scepticism about the value of stock-picking or tactical sector allocation.

“Investors clearly have doubts about the feasibility of using market predictions to generate alpha consistently over the long term,” says Stuart MacDonald, managing director at Aquila Capital.

Aquila Capital says its risk-parity funds, which aim to spread risk across the portfolio without making specific calls on securities or sectors, can address these investors' concerns. Other options for investors who doubt the value of alpha generation include portfolios of index tracker funds.

The survey follows research from S&P Dow Jones Indices which found that two-thirds of active eurozone equity funds failed to beat their benchmark over five years.

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