Key Points Performance backtests are often used as evidence to “prove” a smart beta strategy is “better” than its competitors. In our view, careful attention must be given to these claims because backtested results are easily data mined. The historical distribution of live fund performance is a useful guide...
Key Points In a prolonged anti-value momentum-driven rally, it’s easy and natural to forget the long-term value proposition of a rebalancing discipline. The evidence and intuition underlying a contrarian value investing discipline has proven merit in cycle after cycle across history. By steadily rebalancing against the market’s most extravagant...
Jason Hsu and Vitali Kalesnik discuss which definitions of the quality factor are robust and have been shown to generate a return premium. Their findings suggest a link between the quality factor and ESG investing. Q3 2019 hedge fund letters, conferences and more Image source: Vimeo Video Screenshot Jason Hsu, PhD Senior...
Nobel Laureate Robert Shiller, interviewed by Rob Arnott, expounds on the importance of narratives in driving economic events. Q2 hedge fund letters, conference, scoops etc Robert Shiller, PhD Sterling Professor of Economics, Yale University Rob Arnott Partner, Chairman of the Board, Research Affiliates RA Conversations: Robert Shiller Explains Narrative Economics - Part 1 Transcript Rob: Bob, thank...
Kelly Shue’s research challenges the conventional wisdom that size is the fundamental determinant of volatility and offers investors a window on an under-appreciated driver of asset price movements. Q2 hedge fund letters, conference, scoops etc rawpixel / Pixabay Kelly Shue, PhD Professor of Finance, Yale University Jonathan Treussard, PhD Partner, Head of Product Management, Research...
Based on his research, Alex Edmans shows how a corporation treats its employees and how closely it follows governance-related best practices is indicative of positive long-term outcomes for investors. Q2 hedge fund letters, conference, scoops etc The Business Case for Purposeful Business What Is A Responsible Business? One that grows the pie,...
Key Points Q2 hedge fund letters, conference, scoops etc The authors define a bubble and an anti-bubble so that investors can avoid or select, respectively—in real time—the impacted assets or asset classes. Today, Tesla, bitcoin, and certain US technology stocks are valued far above their fundamentals and are well into...
Key Points Modern Monetary Theory (MMT) argues that governments with fiat currencies should coordinate treasury and central bank actions to fund government programs by directly printing money, unconstrained by tax receipts or borrowing capacity. Progressive politicians embrace MMT because the doctrine allows them to advocate substantial increases in social...
With US stock market valuations exceeding all historical valuation levels—except for those hit at the peak of the dot-com craze—Rob Arnott examines the subsequent performance of companies, which were at one time the largest companies in the world. Q1 hedge fund letters, conference, scoops etc Image source: Research Affiliates/Video Screenshot Rob Arnott:...
Cam Harvey speaks to the currently inverted yield curve as an indicator of a slowing economy, further expounding on his Conversations of January 2019. Q1 hedge fund letters, conference, scoops etc janjf93 / Pixabay RA Conversations: The Inverted Yield Curve Cam Harvey, PhD Partner and Senior Advisor, Research Affiliates Professor, Duke University Jim Masturzo, CFA Senior Vice...
Key Points Our analysis examines combinations of six factors (value, low beta, profitability, investment, momentum, and size) in simple long-only, investable portfolios that reflect real-world strategies. Based on our research, these six factors produce a substantial diversification benefit across return drivers. We find that selecting roughly a quarter of...
Juhani Linnainmaa cautions investors to be wary of alpha decay in newly discovered factors. Using fresh, pre-discovery data, his out-of-sample analysis shows about half of the many factors tested were not robust. Q4 hedge fund letters, conference, scoops etc mohamed_hassan / Pixabay Juhani Linnainmaa, PhD Partner & Advisor, Research Affiliates, and Professor,...
Abstract Factor investing has failed to live up to its many promises. Its success is compromised by three problems that are often underappreciated by investors. First, many investors develop exaggerated expectations about factor performance as a result of data mining, crowding, unrealistic trading cost expectations, and other concerns. Second, for...
We compare the two most popular multi-factor strategy construction methods of mixing and integrating, and recommend when each of the two strategies is the more suitable for an investor’s needs. Q4 hedge fund letters, conference, scoops etc rawpixel / Pixabay Registration is required to join this event. If you have not registered,...
Key Points At Research Affiliates, our winning formula focuses on mission, culture, and team. We believe a corporate culture that supports the development of its employees will in turn contribute to the long-term success of clients, partners, and the firm itself. We believe a firm’s culture is essential to...
Cam Harvey looks at the yield curve today through the lens of his 1986 pioneering work on yield-curve inversions and their foreshadowing of economic downturns. mohamed_hassan / Pixabay Q3 hedge fund letters, conference, scoops etc RA Conversations: The Flattening Yield Curve Cam Harvey, PhD Partner & Senior Advisor, Research Affiliates, and Professor, Duke University Jim...
Abstract Machine learning offers a set of powerful tools that holds considerable promise for investment management. As with most quantitative applications in finance, the danger of misapplying these techniques can lead to disappointment. One crucial limitation involves data availability. Many of machine learning’s early successes originated in the physical and...
Key Points We define and study the alternative risk premia (ARP) universe through four distinct core strategy types: equity neutral, volatility, trend, and macro. We believe that a host of underlying drivers, which include rising price volatility, individual factor investing risks, and implementation shortfall, among others, has contributed to...
Key Points Both academic research and our own experience indicate that the business case for corporate diversity is compelling as a result of higher collective intelligence. Testing the investment case for greater diversity faces two major challenges: insufficient historical data and difficulty in measuring whether the culture is one...
Key Points Most investors seek to earn a 5% annualized return above inflation to securely meet their financial needs in retirement. With today’s low expected returns across financial markets, most mainstream portfolios, including the typical advisor portfolio, are poised to fall well short of this mark. An alternative risk...
Key Points The negative gap between investor returns and fund returns is the biggest failure in investment management. Alpha is only a sideshow. If we extrapolate the investor returns gap to smart beta strategies, poor client timing will completely negate the potential for positive excess returns. The client service...
Key Points Investors seeking to add smart beta and factor strategies to their portfolios should consider the four craftsmanship elements of product design: 1) universe coverage and weighting mechanism, 2) signal definition, 3) measurement period, and 4) rebalancing frequency. Design decisions guided by these craftsmanship elements can help...
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