Investors the world over chase alpha but struggle to get it. Nevertheless, their zeal for alphas does have one lasting effect: it nourishes an active fund management industry that is worth trillions. In the US alone, mutual funds oversee some $16 trillion of assets, six times more than that managed by ETFs (2017 Investment Company Fact Book). Some lessons, it seem, are hard to learn.

Having made my point that alphas are expensive but betas (broad factor exposures) are cheap, I don’t want to flog a dead horse. Instead, I want to move on and say a bit more about betas. What are the interesting factors driving stock prices? Why should we care? How rewarding are these factor exposures? How to get them? What are the pitfalls?

There is a fundamental difference between alphas and betas that confuses many investors. Alpha is “excess returns over a benchmark”. If I invest