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

Factor Investing Can Keep Active Management Relevant

Despite its recent troubles, active management remains relevant, but its future “lies in low expenses that allow investors to enjoy a comfortable share of returns,” according to a recent article posted on ETF.com. The article cites comments by Tom Rampulla, managing director of Vanguard Financial Advisor Service, who argues that active managers have to employ factor and smart-beta investing, referred to as an “evolutionary stage of active” that can “benefit client portfolios.” According to Rampulla,… Read More

Ritholtz Says Stock-Picking is Still Alive if Not Kicking

Active fund management has been losing followers but isn’t going away entirely, writes Barry Ritholtz in a recent Bloomberg article. While stock-picking has seen a host of changes, he offers several insights as to “how we got here” including the following: Beating the market is tougher than most people thought, a notion that Ritholtz says has become “widely accepted among both professional investors and individuals.” We have a much greater understanding of investor psychology, and… Read More

James O’Shaughnessy: Knee-Jerk Investing Doesn’t Work

A quantitative investing guru who uses concrete metrics to analyze stocks, James O’Shaughnessy believes that investors get in the way of their own success by reacting emotionally, writes Validea CEO John Reese in this week’s Forbes. The article outlines O’Shaughnessy’s investment philosophy that, to outperform the market, an investor must choose a strategy and “stick to it, no matter what” as well as his belief that most investors lack the mindset that allows them to… Read More