What does "alpha" measure in investment terms?

Alpha is a performance measurement that evaluates an investment's ability to generate returns in excess of a benchmark index, adjusting for its risk. Essentially, it assesses the skill of a portfolio manager in providing additional value through active management. If a fund has a positive alpha, it indicates that the fund has outperformed its benchmark after considering the risk taken. Conversely, a negative alpha suggests underperformance relative to the expectations set by the benchmark.

In this context, other options do not align with the definition of alpha. While investment fees are important for assessing overall returns, they are not directly related to alpha. Similarly, the total assets of a fund give insight into its size and market influence but do not reflect its relative performance compared to a market index. Lastly, theoretical projections of future returns can be useful in financial planning but are not a measure of past or current performance like alpha is. Therefore, the focus on active return against a market index makes the choice of alpha as a measure of a fund's active return distinctly accurate.