CFA Lecture

Alternative Beta and Robo-Advisors

Robo in Lederhosen - Munich Fintech Series


Like other industries, asset management is undergoing a process of automation. Pas-sive index funds continue to gain market share from actively managed funds. Moreover, robo-advisors are now helping to tailor portfolios to individual clients. Recently, this trend has also spread to alternative investments: semi-passive, low-cost alternative beta funds now compete with hedge funds in harvesting risk premia and in implementing sys-tematic trading strategies.

In this talk, Christof Schmidhuber will first introduce a set of alternative beta building blocks. Based on real track records, he’ll demonstrate that they can replicate hedge fund indices at low cost and with high liquidity. He’ll then show how to integrate these alternative beta building blocks into traditional long-only portfolios. They can enhance returns by new risk premia and add an automated tactical asset allocation on top of the strategic asset allocation.

Christof will outline how to tailor these building blocks to the investment objectives and constraints of individual clients and how to efficiently implement them with the help of smart robo-advisors. Finally, he’ll discuss limitations of this approach.