Factor Investing is Falling Short

The attempts by pension funds and endowments to earn equity premiums by incorporating factor-based funds into their portfolios has fallen short, instead leaving them with uncompensated risks. This according to a recent article inInstitutional Investor. The article cites data from Northern Trust Asset Management’s (NTAM) analysis of 500 complex institutional portfolios over the past five years. The study found that “institutions weren’t getting the results they wanted,” for a number of reasons: ·      “Targeted factor exposures… Read More

Validea’s Justin Carbonneau on the Acquirer’s Multiple Podcast

Last week Validea Partner Justin Carbonneau was interviewed by Tobias Carlisle on the Acquirer’s Multiple Podcast. Toby and Justin discuss Validea and our approach to investing, as well as a bunch of other investing related topics. Below is an outline of the discussion and a link to the video. How Validea capture’s quantitative models and what we do with them; How we actually implement these strategies in the real world; The underperformance of value stocks,… Read More

Is GARP Investing Still Golden?

An article in CFA Institute discusses the methodology and performance of growth-at-a-reasonable-price (GARP) investing, a style popularized by Fidelity manager Peter Lynch. “Most investors,” the article says, “are inclined toward value, a preference backed by ample academic research.” But some try to bridge the value/growth gap through a hybrid, GARP strategy. It describes the methodology and an analysis of GARP stocks with respect to earnings growth and valuation: The article also offers a breakdown of… Read More

Five Questions: Factor Investing with Jim O’Shaughnessy

By Jack Forehand (@practicalquant) Factor investing has grown dramatically in recent years. But it is far from new. As those of us who invest using factors seek to learn more about them and the best way to utilize them in our portfolios, there is no better place to turn than those who have been there since the beginning. For this week’s interview, I have the privilege of talking to Jim O’Shaughnessy. Jim was a factor… Read More

Rob Arnott on Quant Investing: Opportunities and Pitfalls

In a podcast interview last month with the Investment Innovation Institute, Research Affiliate’s Rob Arnott discussed a range of issues related to factor investing, quant strategies and research with host Daniel Grioli. Here are some highlights: “There are no bargains in the absence of fear, and fear is usually rooted in a narrative of things that could go wrong,” says Arnott, adding that opportunities present themselves in stocks that are out-of-favor, unloved and have inflicted… Read More

Investors Getting More Comfortable with Factor Investing

An article in WealthManagement reports that factor investing has gained acceptance and an increase in demand, as evidenced by an Invesco study that involved interviews with key decision makers of more than 300 institutional and wholesale factor investors. “However,” the article continues, “the Invesco study highlighted that nearly half of the investors adopted factor investing for the first in 2015 or more recently.” The study also found that factor investing generally began with a single… Read More

Quant Investor Cliff Asness Defends Factor-Based Strategies

Prompted by a lackluster performance year, AQR Capital Management founder Cliff Asness wrote a 23-page essay defending his factor-based investing strategies according to a recent Bloomberg article that features an interview with the billionaire. Here are some highlights: Asness believes that there is a “minor crisis in confidence” for some quants, but that it’s misplaced. “We’ve seen periods like this quite a few times before.” He contends that his firm expects to “win long term,… Read More

Will Factor Investing Kill Hedge Funds?

Last month, the Financial Times ran a lengthy piece on factor investing that discusses to what degree it poses a threat to the hedge fund industry. The article recalls a controversial 2001 paper in which AQR’s Cliff Asness argued that the hedge fund industry’s skills were “overstated.” Today, the article reports, AQR is a “major player in the hedge fund industry. It’s $226 billion of assets under management outstrip even Ray Dalio’s Bridgewater Associates. But rather… Read More

Secrets to High Returns: Has the Hunt for Factors Gone Too Far?

An article in the May issue of the Chicago Booth Review discusses the ongoing discovery of investable factors, which it says are “being discovered almost as quickly as they can be packaged and sold to the waiting public.” But findings from a recent study beg the question: “Are there really 300 separate characteristics associated with higher asset returns, or only a handful of things really driving stock prices?” The study– conducted by Guanhao Feng and… Read More

The Future of Factor Investing

A recent article in Advisor Perspectives offers a number of insights regarding factor investing: Data mining, it argues, represents a “huge risk” in factor-based investing. “Many factors have proven to not work in practice and even the most popular factors, like value and momentum, may prove less effective going forward.” With investing, the article argues, “true relationships can be hard to see because of randomness and noise in data, and there’s a risk we convince… Read More