Alternative Risk Premia: Crisis or Opportunity?

Research Affiliates

Michael Aked

Research

18 Pages

Research Affiliates examines whether the 2018 breakdown in alternative risk premia signals structural failure or a reset opportunity. After years of strong expectations, widespread losses challenged diversification claims, yet the authors argue dislocations may actually improve forward returns for disciplined, diversified investors.

Key Takeaways

Unusual Broad Underperformance: In 2018, carry and value strategies fell roughly -9% to -10%, marking the first year in 12 where all major premia underperformed simultaneously.
Long-Term Return Dispersion: Over a 10-year period, core strategies delivered 3.9% to 9.4% annual returns, highlighting meaningful variation across trend, macro, and equity-neutral approaches.
Diversification Still Critical: A composite ARP proxy generated about 9.2% annual returns with 10% volatility, reinforcing that combining uncorrelated premia improves outcomes despite short-term drawdowns.
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