Given the increased complexity and diversity of ARP strategies, we outline a framework for investors to navigate the ARP universe.

While alternative risk premia (“ARP”) strategies are capturing the attention of investors and the industry alike, these are not “new” strategies. Popularized by the work of Fama and French, countless academics have published papers on systematic exceptions to the asset returns predicted by the Capital Asset Pricing Model (CAPM) which was first introduced in the early 1960s. What is new is the number of investment products that now package these alternative risk premia using quantitative methods. This increase has been driven by investors who recognize the appeal of their attractive return profiles and low correlation with traditional asset classes. Alternative risk premia strategies continue to evolve, developing new methods and techniques to sharpen existing signals and systematically extract premia from expensive “hedge” fund strategies.

This paper describes the objectives of ARP strategies, the drivers of their returns and where they might fit in a portfolio, factors to consider when selecting an ARP manager.