TCW MetWest’s AlphaTrak strategy seeks to outperform the S&P 500 while maintaining a risk profile very similar to index. We manage AlphaTrak by combining a non-leveraged position in S&P 500 Index futures with a short interest rate duration (0 to 3.0 years) fixed income portfolio. AlphaTrak combines the benefits of index fund management with a potential for excess returns, but with lower volatility of relative performance than is commonly associated with fully active equity management styles. The maximum average interest rate duration of the assets backing the futures is 1.5 years. Investments can include, but are not limited to, money market instruments, government and corporate debt securities, mortgage and other asset-backed securities, and derivatives.
AlphaTrak maintains exposure to the S&P 500 Index through S&P 500 futures, options on those futures, or swaps on the index. Under normal conditions, it is expected that the S&P 500 Index exposure will be achieved primarily through futures, backed by a short interest rate duration fixed income portfolio. Outperformance of the index is achieved through the management of the fixed income portfolio and achieving a return that exceeds the implied financing rate of the S&P 500 futures contract (typically 3-month LIBOR).
The maximum average interest rate duration is 1.5 years, and the typical average credit quality is AA.
The AlphaTrak strategy (index derivatives backed by a short-term fixed income portfolio) can be applied to many other equity and non-equity indices. Currently, TCW MetWest manages AlphaTrak portfolios versus the S&P 500 Index and Russell 1000 Index.