Beta is how much an investment moves with the market. Alpha is the return beyond what the market delivered, for that level of risk. A fund needs alpha greater than its fees to beat an index fund.
What the video says
In hedge funds, a thirteen percent year can be mostly the market's doing. The split is called alpha and beta. Beta is how much a fund moves with the market. Alpha is what it adds on top. Say the market rises ten percent. A fund that moves in step with it returns thirteen. Ten came from the market. Three is alpha. Now say its fees cost two percent. That leaves one point of real edge. A cheap index fund gives you the market's ten. So why do investors care? Investors pay hedge fund fees for alpha, not beta. Beta comes cheap. Alpha costs extra.
In the glossary: Alpha and beta
A simple example with round numbers, not advice. Terms vary by fund.
See an error?