Excess return

Return above a reference return. Measured against the risk-free rate it is the reward for taking risk at all and the numerator of the Sharpe ratio; measured against a benchmark index it is called active return and is the numerator of the information ratio.

A fund returning 14% in a year when Treasury bills paid 6.5% and its benchmark returned 12% earned an excess return of 7.5 points over cash and an active return of 2 points over the index.

Neither is alpha. Alpha is what is left after adjusting for the risk taken, so a fund that beat its index by holding riskier shares can show a positive active return and no alpha at all. When a report quotes excess return, the first question is excess over what.

Name the reference before the number.