(c) A junior in an investment management firm comes across the term portable alpha. He is unfamiliar with this and asks for your help to explain this concept.

(i) Describe the portable alpha strategy. (7 marks)

(ii) Consider a portfolio of mid-cap stocks with 0.75 beta against a benchmark in a bull market which gained 6% above risk-free rate, say T-bills. If the portfolio actually makes 5.5% and the manager had sold the benchmark index to hedge the portfolio market exposure at the beginning against her managed portfolio, what is the alpha ported on the portfolio? What could have contributed to the alpha? (8 marks)