FIS’ innovative approach reduced investment risk and improved portfolio performance




CASE STORY

UNCOVERING FACTOR BETA FOR ALPHA CENTAURI’S INVESTORS

Alpha Centauri, a Hamburg-based investment boutique started to invest in market-neutral, single-factor strategies, including earnings momentum, balance sheet quality and dividends in 2009. After three years of outperformance, its investments had topped €300 million by 2012.

While Alpha Centauri was confident in its bottom-up investment style, it soon found itself exposed to unexpected macro risks. The euro crisis severely impacted its portfolio returns.

Alpha Centauri worked closely with our investment risk experts to develop a research and portfolio construction infrastructure to address risk issues. This approach allowed Alpha Centauri to create, test and launch new factor index products in collaboration with STOXX, a leading provider of equity indices.

Its new investment strategies are founded on a greater consideration of investment risk. This allows the firm to extend its existing research and to compare performance and risk characteristics with the live track of existing strategies.




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By exploiting the features of the FIS’ investment risk solution APT, Alpha Centauri has also created a series of European factor indices for STOXX*. With an ex ante tracking error of only 3% the excess return has been 2.75% on average in the first 9 months since inception compared to the benchmark (STOXX Europe 600).

Thanks to the partnership with FIS, Alpha Centauri is now in a stronger position than ever to not only seize opportunities for factor investing but also to overcome today’s volatile markets and changing regulations.


With FIS’ investment risk solution APT, we discovered some surprising sources of unintended risk in our original strategies and in external factor indices. After extensive research and adjustments, we were able to deal with most of the main risk issues in factor investing and liquid alternative risk premia such as unpaid systematic risk, asymmetric payoff profiles and factor alignment problems. With Alpha Centauri team’s vision and due diligence coupled with FIS’ risk technology and partnership, we have implemented innovative strategies that are growing our business.

Ulf Füllgraf, managing director, Alpha Centauri.




*Source: iSTOXX Europe Factor Indices
https://www.stoxx.com



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