Alpha is the Greek term, used by financial theorists, for the proportion of portfolio returns down to an investor’s individual decision-making and skill. Investors Chronicle Alpha is our new higher level subscription service aimed at empowering you with the tools to understand and monitor the moving parts of the investment process, and further hone your skills to have an even better chance of achieving these higher returns.
We aim to give you more of the great ideas you get in Investors Chronicle, plus IC Alpha will demonstrate how these tips fit in a portfolio strategy. Here’s a brief overview of some of the content to expect during your free trial of the service, how it differs from existing Investors Chronicle coverage, and how to use the reports together in a strategic approach to building wealth.
The first of our quarterly asset allocation overviews
This report blends analysis of economic trends with asset class and market valuations. We introduce balanced and adventurous asset allocation strategies, designed relative to global equity risk, as well as benchmark exchange traded fund (ETF) portfolios. We also make tactical asset allocation tilts from these portfolios, using ETFs.
The reviews are about more than selecting the ETF portfolios. Think of the strategic asset allocation as stage one of the investment process. The quarterly tactical asset allocation reviews are stage two. Stage three is the selection of individual funds and securities.
As well as following how our TAA decisions perform using passive funds (which is largely what robo advisor services like Nutmeg and Moneyfarm do) we will be tracking portfolios matching our TAAs but with actively managed investments. This is the link with other Alpha reports, which focus on identifying the best individual securities.
For the first time - frequently updated stock screens
Algy Hall’s regular stock-screening column is a firm favourite among Investors Chronicle readers and we will continue to publish updates with their existing frequency as part of the standard subscription packages.
Alpha offers something extra, however. Algy has chosen four of his favourite strategies and split them each into screens for larger and smaller companies by market capitalisation. Each pair of screens will be refreshed once a month (staggered weekly), which is much more frequent than Algy’s annually-run magazine screens, giving Alpha subscribers a constant stream of ideas for the UK equity slice of their portfolios.
What’s more, twice a year Algy will be reviewing the Alpha screens and pointing out what their performance tells investors about which investing styles, or ‘factors’ in current parlance, are doing best. This will offer quantitative analysis feedback for our Alpha portfolio management.
Sector deep dives - starting with oil & gas
Over the course of the year, we will produce ten Alpha sector reports. These professional length research projects are unlike anything we have ever published in Investors Chronicle before and will give investors an even deeper insight into the key issues affecting the financial health of the major market sectors. The first of these deep industry dives is our Oil & Gas sector report, written by Deputy Companies Editor Alex Newman, containing:
- Comparison of the prospects for the sector against the rest of the equity universe
- Analysis of big assumptions companies have made about the oil price, currency and costs
- Qualitative and quantitative comparison of big energy companies with international peers
- Assessment of financial health of smaller drillers and how geology, political risk and capital markets weigh on their prospects and valuation
- Latest opinions on legal and regulatory structures and the long-term future for energy
During the 8 week Alpha free-trial period we will be producing a second report on another sector. Where appropriate, Alpha sector reports include comparison with internationally-listed companies and insights are offered into the global equity universe, offering more valuable food for thought when choosing funds and shares for our Alpha portfolio equity allocations.
The best investment trusts for our global asset allocations
We’ll be using ETFs for our passive strategic asset allocation benchmarks and to measure the proportion of returns our tactical tilts are generating. For our managed Alpha portfolios ETFs may remain our favourite vehicles for some exposures, but we’ll also be looking at a mix of collective investment schemes and individual securities.
Naturally, investment trusts will be subject to our analysis and Algy Hall has devised another screen to pick some of the best performing UK-listed close-ended managed funds. We’ll be providing monthly updates on this as part of Alpha and also relaying what the premiums and discounts of investment trusts infer about market valuations as a whole.
Alpha broker-length reports to fill the hole in small cap company coverage
The UK-listed small cap universe has long been a successful hunting ground for Investors Chronicle’s top stock-picker, Simon Thompson. We’ll be harnessing Simon’s expertise to provide (at least) one broker-length Alpha company report per month. The reports will give thorough and independent analysis of the business models and financial health of Simon’s favourite small-cap opportunities.
Such smaller companies are often only covered by their sell-side broker and the problem of a lack of independent research could only be exacerbated by the regulatory changes. The first company analysed for Alpha is, according to Bloomberg’s records, covered by no brokers. And unlike the under-threat research industry, we aim to expand our small cap coverage in Alpha if there is demand from private investors. As the service develops, more of our writers will examine exciting small cap opportunities in the in-depth Alpha report format.
Simon Thompson’s Bargain Shares portfolio and updates will continue to be published in the magazine and online for standard subscribers, as will his weekly column that appears in the magazine and regular online updates. Even after the Alpha trial period has ended, Simon will also give standard subscribers updates on companies he has initiated coverage of in Alpha.
Demonstrating how adding Alpha ideas affects our portfolios
The Alpha reports will generate a unique body of ideas for the Alpha managed portfolios and we’ll be adding ideas from stock screens, investment trust screening, sector reports and company analysis reports to their appropriate slot in our asset allocation models. We’ll monitor how our actively selected investments perform against the tactical asset allocations that use passive vehicles and also against the strategic asset allocation benchmarks.
At the heart of portfolio management is how investors manage risk. For this purpose, we’ll be demonstrating how securities we add to our portfolios affect the level of risk we are taking and what the trade-off is to potential rewards.
