Masters in Business

At The Money: Finding Alpha via Unique ETF Strategies

March 11, 2026

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  • For most investors, 'alpha' in an ETF wrapper means delivering unique, differentiated strategies after fees and taxes to shape portfolio outcomes beyond core index holdings, rather than achieving hedge-fund-level excess returns. 
  • Publicly known factors (like value or momentum) persist because human behavioral biases, such as a lack of discipline and short time horizons during periods of underperformance, prevent these factors from being fully arbitraged away. 
  • Alpha Architect's unique ETF strategies focus on accessing market inefficiencies through academic factor tilts (momentum/value) and complex option/funding structures (like box spreads and tail risk hedging) to provide diversification benefits outside of standard beta exposure. 

Segments

Defining Alpha in ETFs
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(00:01:52)
  • Key Takeaway: ETF alpha is defined as delivering unique, differentiated strategies after fees and taxes to shape portfolio outcomes beyond core beta holdings.
  • Summary: Alpha for the public is delivering unique strategies that differentiate a portfolio beyond core holdings like Vanguard beta. This is not the high-return alpha seen in exclusive funds like Jim Simons’ Medallion Fund. The goal is to provide boutique help that shapes portfolio outcomes efficiently.
Persistence of Factor Premia
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(00:05:46)
  • Key Takeaway: Factor premia persist because human behavior, specifically the lack of discipline during long underperformance stretches, prevents full arbitrage.
  • Summary: Even well-known factors like value do not get arbitraged away because they can underperform benchmarks for 10 or 20 years, causing investors to abandon the strategy. Adhering to these factors requires discipline and a long time horizon, similar to dieting or fitness goals. Markets often push investors to maximal pain before gains materialize.
Avoiding Backtest Overfitting
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(00:09:34)
  • Key Takeaway: Credible backtests must include the story of why the strategy is also bad, detailing career risk and long periods of underperformance.
  • Summary: Investors should never trust past performance, especially hypothetical results, and must focus on the fundamental process. A credible model must show why it is so bad simultaneously to how great it is, detailing the career risk involved. Asset managers’ incentives often warp backtest presentations, making academic, peer-reviewed evidence preferable due to less biased incentives.
Factor ETF Strategies Overview
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(00:12:58)
  • Key Takeaway: Alpha Architect’s core factor ETFs (QMOM, IMOM, QVAL, IVAL) are designed based on academic portfolio construction methods, leading to high active share.
  • Summary: The momentum and value ETFs are designed to mimic how academic portfolios are created, often starting with the top decile of stocks based on the factor metric. This results in high active share, meaning they deviate significantly from core benchmarks like the S&P 500. Investors must have a long horizon and understand the process because these strategies can significantly underperform.
Box Spread Fixed Income Access
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(00:15:21)
  • Key Takeaway: ETFs like BOXX and Box A access the implied risk-free rate through the box spread market to deliver excess returns over equivalent duration Treasury bills.
  • Summary: The box spread market allows access to an implied risk-free rate among broker dealers, which is often lower than the Treasury market rate. BOXX targets one to three-month duration, aiming to outperform T-bills net of fees and taxes by capturing slack in the funding market. Box A employs the same concept but includes a trend component.
Tail Risk Hedging with Chaos
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(00:17:13)
  • Key Takeaway: The Chaos ETF manages tail risk by funding deep out-of-the-money protection by selling put spreads and investing collateral efficiently, accepting risk in small drawdowns.
  • Summary: Chaos is designed to make money if the market blows up and the VIX explodes, as demonstrated during Q1 2020. It avoids the typical bleed-out of traditional tail risk funds by using collateral and selling spreads to finance the protection. This structure means investors will still experience losses in smaller drawdowns, which is the cost of insurance.
Inflation/Deflation Protection (Hide)
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(00:19:38)
  • Key Takeaway: The Hide ETF functions as ‘Poor Man’s Managed Futures’ by trend-following allocations to bonds (for deflation), commodities (for inflation), and cash.
  • Summary: Hide offers protection against both hyperinflation and deflation within a single, low-cost product (29 basis points). The strategy trend-follows exposure to commodities, bonds, and real estate, owning whichever asset class is performing best in the current environment. If no asset shows movement, the fund defaults to holding cash.