The Devil is Often in the Details in Investing

By Jack Forehand (@practicalquant) —  When you look up a word in the dictionary, you expect to get a pretty clear definition of what it means. There obviously is gray area with some terms and some have multiple definitions, but in general a word’s definition will give you a pretty clear understanding of it. When it comes to investing, it is common to take that mentality and assume it also holds. The reality, however, is that… Read More

BlackRock’s New Suite of Funds to be Led by Robots

Blackrock Inc., the world’s largest asset manager, is “turning to robots to drive its latest push into active exchange-traded funds,” according to a recent article in Bloomberg. The article reports that, according to a recent statement by the firm, the funds (under the brand “iShares Evolved”) will choose holdings in industries such as technology, innovative health care and media entertainment based on machine learning and natural language processing. According to Jeff Shen, co-head of investments… Read More

Investing Insights Regarding Smart Beta Strategies

At this month’s 2017 Morningstar ETF Conference, Alex Bryan interviewed Chris Brightman, the chief investment officer of Research Affiliates, to discuss concerns regarding smart beta products. Here are some highlights: Bryan points out that while data provided by Research Affiliates shows strong back-tested performance for some smart-beta strategies, the “live” record of many of these products has been weak. Brightman clarified that his findings are not restricted to smart-beta strategies. “If we look across the… Read More

Morningstar Study Analyzes Strategic-Beta Fund Performance

A study conducted by Morningstar, summarized in a recent article by the firm’s Alex Bryan, CFA, attempts to determine whether investors can duplicate strategic-beta fund performance with a combination of market cap-weighted indexes. The study compares the performance of a group of strategic beta funds to a “replicating portfolio of six style benchmarks for its relevant universe.” The purpose of the study, writes Bryan, is not necessarily to suggest that investors should replace strategic beta… Read More

Vanguard’s McNabb Says Data Doesn’t Support ETF Bubble Fears

Although the shift to ETFs over the past ten years has been dramatic—since the start of 2008, the industry has attracted nearly $2.8 trillion in investment dollars (according to the Investment Company Institute)—Vanguard chief executive Bill McNabb told The Financial Times that he doesn’t see this as a “systemic” trajectory indicative of a market bubble. In the interview, McNabb argues that index tracking funds represent less than 15 percent of the equity market capitalization around… Read More

BlackRock’s Ang on Factor Investing

Andrew Ang, who runs factor investing at BlackRock, argues that factor investing remains “the language of investment excellence” despite naysaying by the likes of Vanguard’s Jack Bogle and smart-beta pioneer Rob Arnott of Research Affiliates. This according to a recent article in Forbes. Black Rock, the article reports, has been “firing human stock pickers and betting that factor investing is the future of the struggling active-investment-management business.” It adds that Ang expects smart-beta ETFs to… Read More

Zweig: Cheaper Share Prices Can Be an Illusion

When ETF shares appear to be trading at a discount to the index of stocks they hold, according to a recent article in The Wall Street Journal by columnist Jason Zweig, “the apparent bargain is an illusion.” “Stock indexes, and by extension the funds that are based on them, are averages,” writes Zweig, adding, “Investment regulators say that fund companies are free to calculate and report an average valuation any way they wish, so long… Read More

Active Management Versus Passive Investing: How to Choose

Active management fees, coupled with periods of underperformance, have made low-cost index investing attractive for investors, writes Validea CEO John Reese in a recent article for The Globe and Mail. Indexing, Reese explains, was developed as a way for investors to track the market’s return while maintaining diversity and avoiding the time and risk associated with finding the right active manager. The article cites Morningstar data showing that, last year, the flow of funds into… Read More

ETFs Make Markets Less Efficient Writes Klarman

While exchange-traded-funds have claimed a growing share of investor funds, critics say these funds are “potentially dangerous and untested through a crisis,” says a Bloomberg article from last week. In a recent letter to investors, Baupost Group founder Seth Klarman explains that the dominance of ETFs is making markets less efficient: “The inherent irony of the efficient market theory is that the more people believe in it and correspondingly shun active management, the more inefficient… Read More

Momentum Investing is Back, At Least for Now

The strategy of buying whatever sector has had the greatest price or earnings gains in the past twelve months seems to have come back in fashion, according to a recent article in Investment News. The article cites a recent white paper by AQR that addressed momentum investment results and reported that “trend-following has delivered strong positive returns and realized a low correlation to traditional assets classes for more than a century.” At the Morningstar ETF… Read More