AlphaSimplex

Alpha Simplex Overview

Alpha Simplex, founded by MIT professor, Dr. Andrew W. Lo, "specializes in absolute-return investment strategies that are implemented primarily with futures and forward contracts."

Dr. Lo has derived an adapted hypothesis from the Efficient Market Hypothesis in which he calls the Adaptive Market Hypothesis (AHM). AMH states that "markets are not perfectly efficient, but they are highly adaptive and competitive. Investors experience fear and greed and can at times be overconfident or overly risk-averse, but they learn from their mistakes and adapt as they compete for economic survival."

Using this hypothesis the firm employs several different strategies to maximize performance for its investors. Those strategies include:

- Quantitative Global Macro Strategy (QGM)
- Global Tactical Asset Allocation (GTAA)
- Laser and Global Alternatives
-Active Volatility Management
- Risk Parity Plus

To learn more about a specific strategy please click here.

In a February 2012 video by WealthTrack, Dr. Andrew Lo was interviewed to discuss his perspective of the market. Specifically he stated in the video that government is the biggest reason for systemic risk. And that in this day in age we are faced with what Dr. Lo calls Volatility of Volatility: within a volatility market there are times in which the market is calm via the VIX and then can swing 20-40%.
Dr. Lo mentioned that given this volatility the traditional approach of investing is no longer valid and therefore investors need to address three key items that he highlights.

Given this new environment Dr. Lo has provided three concerns/guidance.

1) Markets are not stable and therefore investors need to be more active in managing and reducing their risk
2) Diversification deficit disorder - need to be more proactive in diversify portfolio across sectors, commodities, instruments and regions.
3) Manage our ways around market dislocation. Be more aware and active in managing portfolio.

Even with these three concerns/guidance, Dr. Lo was hesitant to have small individual investors become day traders

How AlphaSimplex uses future contracts to implement its strategies.... 

 As mentioned earlier one of AlphaSimplex strategies is the Laser and Global Alternatives. As stated on AlphaSimplex website, "Laser and Global Alternatives uses futures and forwards to replicate exposures to a diversified set of the most common liquid risk premia driving hedge-fund returns. This strategy provides similar diversification benefits as fund of hedge funds, and is well-suited for large institutional investors who cannot otherwise find adequate capacity among hedge-fund managers, as a liquidity buffer with an otherwise less liquid portfolio, and for smaller investors who would not otherwise have access to the diversification benefits of hedge funds because of minimum-investment requirements."

Using this Laser and Global Alternatives strategy AlphaSimplex invests in forwards and future contracts across a heavily diversified asset class, from commodities and currencies to stocks, bonds, mutual funds, and ETFs. Specifically this strategy tries to help hedge funds better manage, monitor and even rebalance their portfolio to reduce the volatility.