Unravelling Risk and Alpha

Applying Factor Insights to Fundamentally Managed Portfolios

“Quantitative factor models provide another perspective on mitigating unwanted systematic risk.”

Fundamental managers are not focused on quantitative factors, but their strategies inevitably take positions aligned with various risk factors.

We show how a constrained portfolio rebalancing can reduce extraneous factor risk and increase stock-specific risk, thus increasing alpha among managers who excel at fundamental stock picking.

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