To use an Alpha Portfolio on Spotalpha, you can follow these steps:
- Understand the concept of alpha: In finance, “alpha” refers to a measure of an investment’s performance relative to a benchmark index, such as the S&P500. It represents the excess return earned by an investment beyond what would be expected from the market. An alpha portfolio aims to outperform the benchmark index and generate positive alpha for the investor.
- Choose the investment category: Spotalpha offers three Alpha Portfolios based on different investment segments: Large-Cap, Mid-Cap, and Small-Cap. Each Alpha Portfolio has its specific characteristics. Consider your investment goals and risk tolerance to determine which Alpha Portfolio suits you best.
- Understand the strategies employed: Alpha Portfolios use three main strategies to generate alpha: Timing, Selection, and Allocation. Timing involves staying invested in good quality stocks that outperform the benchmark during ‘bullish market conditions’, and shifting allocation to cash during bearish market conditions. Selection involves carefully choosing about 8 to 15 stocks for optimal performance. Allocation focuses on maximizing returns while minimizing risk among the selected stocks.
- Allocation: On the Alpha Portfolio page selected, enter the value of investment you would like to make to see the optimum number of shares per each stock that you would need to purchase to replicate the performance of that Alpha Portfolio.
- Regular portfolio rebalancing: Alpha Portfolios undergo regular rebalancing to ensure they remain aligned with the desired investment objectives and take advantage of market opportunities. This rebalancing occurs approximately 5 to 8 times per year. Spotalpha’s algorithms evaluate the market daily to determine if rebalancing is required. Subscribers receive notification emails when rebalancing takes place.
- Slippage: Spotalpha’s rebalance notifications come before market open and therefore there might be slippage when you are placing your order. I.e: The price at which you are purchasing might be different from the previous session close price. This is expected. However, this should not impact your investment’s performance significantly in the long run as sometimes you benefit from slippage and sometimes you lose. In the end these do not add up to any significant drag in performance.
By following these steps you can use Alpha Portfolios to generate alpha in your investments and outperform the benchmark index.
Large Cap Investment
Mid Cap Investment
Small Cap Investment