The Incredible Structural Alpha

Investors and academics expend great effort searching for alpha, or risk-adjusted excess return. We claim that alpha can be found in a more straightforward manner by thoughtful consideration of the factors driving returns and the portfolios designed from them. We show how this incredible structural alpha can be obtained from stronger factor exposure, more timely data and rebalancing, by taking other factors into consideration, by using multiple metrics to evaluate a factor, and from disciplined implementation. Size and value factors formed using these sources of structural alpha have higher and more persistent returns than the conventional Fama–French versions.