Long/Short (LS) strategies buy one equity portfolio and short another. They are often sold as a way to add a premium with special diversification benefits that arise because the premium is not highly correlated with the rest of an investor’s equity portfolio. We provide examples to show how to evaluate these claims.
Portable alpha is the return from an active investment strategy that has no exposure to some index, such as the S&P 500 or the Russell 2000. It is often sold as a way to get the benefits of active management at lower cost. For the moment we leave aside whether there are benefits to active management and focus on the claim about costs.
Eugene Fama and Ken French are members of the Board of Directors for and provide consulting services to Dimensional Fund Advisors LP.