Alpha

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The excess return of an investment compared with its benchmark index. Positive alpha = better than the market, negative alpha = worse. Most fund managers don't achieve lasting alpha.

Alpha measures how much better (or worse) an investment performs compared with the market.

Calculation:

Alpha = actual return − expected return (based on market risk)

Example:

• The MSCI World returns 8%
• A fund returns 10% with the same risk
• Alpha: +2% – the fund manager achieved 2% outperformance

Why alpha is so hard to achieve:

• Over 90% of fund managers achieve NO positive alpha in the long run
• An information advantage is almost impossible in the digital age
• High fees of active funds (1.5–2.5%) eat up alpha
• "Alpha" in individual years is often luck, not skill ("reversion to the mean")

That's why ETFs: since most professionals don't beat the market, it makes more sense for private investors to simply buy the market (ETF) instead of chasing alpha.

Did you know? The SPIVA study shows every year: over 15 years, more than 90% of active fund managers worldwide achieve NO positive alpha. The few who do cannot be identified in advance.

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