McGraw-Hill

CHAPTER 1 5
Alpha Transport
with Derivatives*
Separating security selectionfrom asset allocation.
Beam me up, Scotty! Alpha transport enables investors to obtain
the best from both security selection and asset allocation.
Of all the futuristic devices dreamed by up science fiction, certainly
one of the most useful is the "transporter" fromthe Star Trek
series, used to "beam" characters instantaneously to their desired
destinations. No long train commutes, no missed airline connections,
just a little dematerialization; then, zip, you're rematerialized
(most of the time) right where you want to be.
Unfortunately, science hasn't yet mastered the technology to
get us from here to there instantaneously, at least in the physical
universe. In the investment universe, however, the development of
markets for derivatives provides some inkling of what the future
may hold.
Derivatives can be used, like the transporter on the starship
U.S.S. Enterprise, to beam the performance available from one set of
securities to virtually any desired alternative set. When in used conjunction
with underlying asset class portfolios in a strategy known
as ''alpha transport," derivatives can help solve one of the thorniest
issues investors face-how to maximize the returns available from
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