In a December 2007 discussion paper, Franklin Templeton’s Australian fixed income group said it is seeing, “especially strong interest in the application of portable alpha to fixed income investing.” (Prudential’s fixed income group and Morgan Stanley’s Portable Alpha team would likely agree.)
The paper is solidly alpha-centric:
“Portable alpha strategies, designed to isolate generation of alpha (excess return over a benchmark) while maintaining the desired asset allocation to traditional beta (market) exposures, have been gaining in popularity among investors. While applications of these strategies may vary in nature, they characteristically have one element in common: the separation of alpha and beta into two components, an alpha-seeking engine and client-specific beta exposure. Such an approach aims effectively to neutralise beta to allow a clear focus on generating alpha.”
While making the generic case for alpha/beta separation and portable alpha, it also suggests that the firm’s “Global Absolute Return” is an ideal source for the alpha component of the strategy.
Says the paper:
“We believe the pursuit of diverse sources of alpha across securities, sectors and global markets, using both a top-down and bottom-up approach, is a key component of a successful absolute return strategy. In addition, a diversified group of alpha drivers can potentially decrease the likelihood of market correlations.”