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

Common Mistakes in Factor Investing

By Jack Forehand (@practicalquant) —   With the release of Michael Batnick’s new book “Big Mistakes: The Best Investors and Their Worst Investments” last week, the topic of mistakes in investing has been front and center on Twitter and on investing blogs. Many investors view mistakes as a topic they want to avoid. Most of us don’t want to admit when we’re wrong and we certainly don’t want to revisit it in the future and bring back… Read More

Factor Investing Tips

For investors interested in factor-based strategies, a recent Barron’s article suggests that it can “take longer than most investors are willing to wait for signs of success.” The article cites comments from Gregg Fisher, founder of Gerstein Fisher (which managed $3 billion using a factor-based approach), who say investors should “shift their factor mixes as time goes on to reduce the likelihood of an ugly surprise shortly before retirement.” According to Barron’s, Wall Street is… Read More

Why Both Sides of the Active vs. Passive Debate Are Right

By Jack Forehand (@practicalquant) —  It has become a common belief in the investing community that passive investing is superior to active management. And there is a large volume of data that supports that argument. Over time, active managers have not produced sufficient returns to justify their fees. In aggregate, finance theory tells us that active managers as a whole will produce the same gross return as the market over the long-term, and their underperformance on… Read More

Value Investing Trends

A recent Morningstar article addresses the persistent lackluster performance of value stocks and whether it is a temporary situation or something more permanent. According to participants in this year’s Morningstar ETF Conference, the article reports, “it’s never easy to be a value investor,” and “value stocks today are behaving just as they should.” John West, managing director at Research Affiliates, shared his view that, “The world is unfolding exactly as it should,” underscoring that most… Read More