Mutual Fund Concepts
Alpha and Beta — what they actually tell you
Alpha measures excess return over a benchmark. Beta measures sensitivity to market moves. Here's how to read them without being misled.
TL;DR. Alpha tells you what the manager added (or destroyed) after adjusting for market risk. Beta tells you how the fund moves relative to the market.
Alpha — manager skill, allegedly
A positive alpha means the fund beat the benchmark on a risk-adjusted basis. Over short windows alpha is mostly noise; over 7+ years it starts to mean something. Even then, mean-reversion is the rule.
Beta — sensitivity, not risk
A beta of 1.0 says the fund moves in lockstep with the index. 1.2 means it amplifies market moves by 20%; 0.8 dampens them. Low beta isn't inherently safer — it could just mean the portfolio diverged from the benchmark.
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