Alpha-seeking ETFs seek to outperform the broader equity market by employing some sort of investment strategy to give the ETF an “edge.” Alpha, also known as excess return, is the amount of which an investment outperforms or underperforms its benchmark. Alpha-seeking ETFs often maintain diversified portfolio allocations to manage the level of unsystematic risk, or risk specific to an individual security in a portfolio. Alpha-seeking ETFs may also employ Modern Portfolio Theory (MPT), which uses measures risk return metrics like a sharpe ratio to optimize a portfolio's holdings.
