E5. Diversification 2.0: Mastering the Art of Portable Alpha

Portable alpha (or as we like to call it: Return Stacking) has become increasingly popular in the financial media (including recent notes from industry giants like BlackRock, Russell Investments, and AQR) but many advisors are left asking: What does portable alpha mean? How might it benefit clients? How can I implement it?

At Return Stacked Portfolio Solutions we have made it our mission to thoughtfully and transparently help allocate into a portable alpha framework for client portfolios.

Join us for this deep dive podcast with Corey Hoffstein, CIO of Newfound Research, and Rodrigo Gordillo, President and Portfolio Manager at ReSolve Asset Management Global.

Key Points

• Portable alpha strategies allow investors to pursue excess returns by separating beta from alpha and layering diversified alternative investments on top of core asset exposures.
• Return stacking can mitigate behavioral biases and improve portfolio diversification by adding rather than replacing traditional stock and bond allocations with alternative strategies.
• Effective implementation of portable alpha and return stacking involves using pre-stacked fund solutions or capital-efficient strategies, ensuring liquidity, and maintaining a prudent safety buffer to manage risks.

(0:00) Introduction of the portable alpha concept and podcast overview

(1:11) Host and guest introductions with regulatory disclaimer

(2:00) Historical context and key topics of portable alpha strategies

(5:20) Poll questions on portable alpha usage

(6:57) Detailed explanation of portable alpha by Corey Hoffstein

(10:49) Challenges in finding alpha across market segments

(12:16) PIMCO's historical bond strategy and application to equities

(19:32) Using S&P 500 futures for exposure and risk management

(23:39) Summary of portable alpha's potential and comparison to traditional approaches

(27:16) Introduction to funding problems and managed futures trend following

(31:19) Performance of diversified portfolios and behavioral timing issues

(35:06) Benefits of stacking alternatives on core portfolios and pre-stacked solutions

(40:09) Practical implementation of return stacking and key takeaways

(41:23) Q&A on implementing portable alpha and return stacking

(45:11) Lessons from 2008 and modern portable alpha approaches

(49:19) Addressing leverage and risk in fund structures

(52:06) Modern portfolio theory fundamentals and managing risks in alpha strategies

(55:23) Optimal stack size and active risk budgeting

(58:07) Return stacking viability in various interest rate environments

(1:00:18) Final thoughts and additional resources

(1:00:47) Contact information and content follow-up

(1:02:01) Call to action for ratings and reviews