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Search for an ETF or holding
Updated 2mo ago.
Updated 2mo ago.
Alpha measures an investment's performance relative to its benchmark index, after adjusting for risk. A positive alpha means the fund outperformed expectations, while a negative alpha means it underperformed.
If the S&P/TSX 60 index returned 8% over a year and an ETF like iShares S&P/TSX 60 (XIU.TO) returned 8.5% with the same risk level, its alpha would be roughly +0.5%. In practice, most index ETFs have a slightly negative alpha due to management fees (MER).
Alpha helps you assess whether a fund manager is truly adding value. For beginner investors, understanding alpha explains why low-cost index ETFs are often preferred: very few active managers sustain a positive alpha over the long term after fees.