Where the 4 points actually came from.
| Return source | pp / yr | What it is |
|---|
| Extra market beta . 1.05 vs 1.00 | +0.6 | Leverage on the index |
| Midcap tilt | +1.4 | Size factor . rentable |
| Momentum tilt | +1.1 | Momentum factor . rentable |
| Unexplained residual | +0.9 | The only skill claim |
| Headline alpha | 4.0 | 3.1 beta . 0.9 maybe |
Even the 0.9 is a claim, not a verdict. At 4 pct tracking error over ten years it carries a t-stat of 0.7. The bar for believing a number is not luck sits near 2.
Carhart 1997 ran 1892 US funds through a four-factor lens. The persistence in returns came from momentum exposure and fee differences, not stock picking. Fama French 2010: net of fees, the average fund's residual is negative.