Portable Alpha for the (Taxable) Masses: Can Capital-Efficient Funds Live Up to the Hype?

Capital-efficient retail products offer the promise of institutional-style portable alpha in an exchange traded fund (ETF) or mutual fund wrapper. Previous articles indicate that one specific type of capital-efficient product, a 90/60 equity/bond strategy, has two potential efficiency-enhancing uses within investment portfolios. First, some have shown that 90/60 strategies can be used as an efficient replacement for long-only equity positions. Second, others suggest that 90/60 strategies can be used as replacements for traditional stock and bond allocations to implement a portable alpha strategy. The authors investigate both of these claims for investors that would otherwise invest in a portfolio of globally diversified equities and high-quality US bonds.