At The Money: Finding Alpha via Unique ETF Strategies

Summary of At The Money: Finding Alpha via Unique ETF Strategies

by Bloomberg

20m•March 11, 2026
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Overview of At The Money: Finding Alpha via Unique ETF Strategies

This episode of Bloomberg’s At The Money features Barry Ritholtz interviewing Wes Gray (Alpha Architect / ETF Architect) about how investors can pursue “alpha” inside transparent ETF wrappers. The discussion defines a practical, public-friendly form of alpha (a.k.a. “poor man’s alpha”), explains why factor-based strategies persist despite being well-known, covers backtest pitfalls and incentives, and walks through several non‑traditional ETFs (momentum/value factor funds, box‑spread cash‑management ETFs, a tail‑risk ETF, and a “hide” diversified trend‑following ETF) as satellite ideas to complement a core index allocation.

Key themes and definitions

  • What “alpha” means here
    • Not the mythical, unbeatable Medallion-style returns; rather, differentiated, scalable, low-cost, tax-efficient strategies that shape portfolio outcomes beyond core cap-weighted exposure.
    • Typically delivered via factor exposures (value, momentum, quality, etc.) or option/strategy overlays inside ETFs.
  • Why factor “alpha” persists
    • Factors are public but require discipline and long horizons; behavioral tendencies and career risk mean many investors do not stick with factor strategies through long underperformance stretches.
    • Transparent ETFs let researchers explain performance via factor models; if a strategy looks like alpha, it usually maps to known factors (or a new factor will be coined to explain it).
  • Skepticism about backtests
    • Treat backtests (especially vendor-produced or hypothetical ones) with heavy skepticism. Favor understanding the process and plausible economic story for why the edge should persist.
    • Prefer peer‑reviewed / academic evidence because of more aligned incentives (less product‑selling bias), though academics aren’t perfect.

Main takeaways

  • ETF-based “alpha” is generally factor exposure packaged to be low cost, tax efficient, and scalable for public investors.
  • Expect long periods of relative underperformance; effective use typically requires a long-term (e.g., ~10‑year) horizon and understanding of the process.
  • Always demand the narrative behind a strategy — including why it can fail — to make a backtest credible.
  • Discount product-provider backtests and look for independent/academic confirmation.
  • Use these ETFs as satellites around a low-cost core index allocation, not as replacements unless you fully grasp the risks.

Notable ETFs discussed (what they are and who they suit)

  • QMOM / IMOM (momentum ETFs, U.S. and international)
    • Rules-based momentum exposure modeled on academic constructs (top decile momentum across broad universe). High active share; intended for investors who accept potential long drawdowns for long-term factor premium.
  • QVAL / IVAL (value ETFs, U.S. and international)
    • Academic-style value exposure (cheap securities across a broad universe). Same tradeoffs as momentum: persistent long-run edge with potential multi‑year underperformance.
  • BOXX (one–three month box ETF) and BOXA (intermediate-duration box with trend)
    • Use box spread / options market to access implied funding/risk-free rates; target to outperform comparable short-duration treasury cash yields net of fees/taxes. BOXX approaches significant scale (~$10B).
    • BOXA adds a trend component; both aim to capture a funding-market edge rather than pure treasury yields.
  • CHAOS (tail‑risk / TelRisk ETF)
    • Designed to provide crash protection: buys protection for deep tail events but funds it by selling put spreads and investing collateral efficiently. The tradeoff: limited protection in shallow drawdowns and potential long-term bleed if markets don’t crash frequently.
    • Example: performed strongly in Q1 2020 during the pandemic (roughly +25–30% in that period).
  • HIDE (“poor man’s managed futures” / inflation/deflation hedge)
    • Trend-following across bonds (deflation hedge), commodities (inflation hedge), and real estate (intermediate). Low-cost attempt to capture managed futures-style diversification; holds cash when no trends are present.

Risks and caveats highlighted

  • Underperformance and career risk: even a correct strategy can underperform for extended periods and be abandoned by investors/managers.
  • Backtest overfitting and incentives: product providers often produce optimistic backtests; discount vendor-supplied hypothetical returns.
  • Crowding and capacity: once a trade is broadly adopted it can compress returns or change dynamics.
  • Tail-risk/insurance funds: buying protection bleeds returns over time unless funded via offsets (but offsets introduce other risks and reduced protection in small drops).
  • Transparent ETFs mean factor explanations are possible — nothing mystical — so evaluate the economic rationale.
  • Tax/fee implementation matters: much of the public benefit of ETF alpha is delivered by keeping fees and taxes low while capturing factor exposures.

Practical recommendations / action items

  • Use these ETFs as satellite allocations around a low-cost core (e.g., S&P 500 / total market).
  • Before investing in a strategy:
    • Ask for the process and the plausible economic story (why it should work).
    • Ask about worst-case scenarios and historical stretches of underperformance.
    • Verify evidence outside vendor backtests (academic papers, independent audits).
    • Confirm implementation details: fees, tax-efficiency, turnover, constrained capacity.
  • Maintain a long time horizon (multi-year to decade) and the discipline to stick through drawdowns if you believe the rationale.
  • Understand tradeoffs: diversification and non-correlation often come at the cost of interim underperformance or specialized risks.

Notable quotes / soundbites

  • “The alpha for the rest of us…is delivering unique differentiated strategies after fee and after taxes that help you shape or differentiate your portfolio beyond the core of what you already have.” — Wes Gray
  • “Alpha in plain sight…We all know what you’re supposed to do, but that doesn’t mean everybody does it.” — Wes Gray
  • “Don’t believe any backtest, especially if it shows a great thing unless it also shows why it’s so bad.” — Wes Gray (paraphrase)

Who this episode is for

  • Long-term investors wanting diversified satellite strategies to complement passive core holdings.
  • Advisors and DIY investors evaluating factor ETFs, systematic option-based ETFs, or alternative diversifiers.
  • Anyone who wants to better understand the practical limits of “alpha” in public, transparent products and how to vet such strategies.

Sponsors and ads were read in the episode (IBM, Sonesta/Red Lion, WISE, MyPolicyAdvocate, LEGO), but the summary above focuses on the investment content of Barry Ritholtz’s interview with Wes Gray.