The alpha of a fund is a measure of the investment performance on a risk-adjusted basis, relative to a benchmark.
What does the chart show?
The chart shows how a fund’s alpha has varied based on the rolling period selected. An alpha above zero generally indicates the fund has outperformed the benchmark on a risk-adjusted basis, conversely an alpha less than zero generally indicates that the fund has under performed the benchmark on a risk-adjusted basis. The selection of a benchmark is critical to this analysis, to ensure a like for like comparison.
When to use the chart
The chart provides a useful comparison between similar funds and can indicate which fund has demonstrated a consistent outperformance over the benchmark over a selected investment horizon. Lonsec notes that alpha should be used in conjunction with other risk measures (especially the beta analysis to ensure the benchmark selection is appropriate) when identifying funds.
Comments