Alpha

Investing

Alpha is excess return relative to a benchmark, adjusted for risk (beta). Positive alpha means an investment outperformed its risk-adjusted expected return; negative alpha means it underperformed. Alpha is the metric by which active fund managers are judged — generating consistent positive alpha after fees is the elusive goal. Academic evidence shows persistent alpha is rare; most fund managers' apparent alpha is statistical noise or hidden beta exposure. The pursuit of alpha is what justifies active management fees but rarely delivers for clients. Passive index funds explicitly aim for zero alpha (matching the benchmark) — a more achievable goal.