Swedroe on Factors in Emerging Market Stocks

In a recent article for ETF.com, BAM Alliance director of research Larry Swedroe outlines findings of an August 2018 study on factor-based investing titled, “The Cross-Section of Equity Returns in Emerging Markets.” Among the many findings of the study–which covers 27 emerging market countries for the period between 1988 and 2014—here are some highlights: Size, value and momentum anomalies are statistically significant using value-weighted portfolios; After controlling for company size, the book-to-market ratio and momentum… Read More

Considerations in Momentum Investing

By Justin J. Carbonneau (@jjcarbonneau) —  About a week ago CNBC had a piece that broke down how much the largest, best performing stocks have contributed to the overall market’s rise this year as tracked by the S&P 500. The table below shows that 99% of the market return in 2018 can get boiled down to a handle of tech darlings — Amazon, Netflix, Microsoft, Apple, Alphabet (Google) and Facebook. The average return of all… Read More

Research Affiliates Says Spread Factor Bets

At the 30th annual Morningstar Investor Conference held last month, passive strategist Adam McCullough interviewed Feifei Lee, director and global head of Research Affiliates Investment Management Group about her firm’s multifactor investment strategy. Here are some highlights: According to Lee, Research Affiliates offers investors a multifactor strategy that combines individual factor portfolios while remaining transparent with respect to which factors are under- or out-performing. The strategy employs five factors; value, momentum, low risk, quality and… Read More

Factor Performance in First Quarter

A recent article in Advisor Perspectives provides an overview of the performance of various factors in the first quarter of 2018. Noting several developments that led to increased market volatility (including tighter U.S. monetary policy and trade tensions), the article outlined the following points: Growth, small size and momentum factors were the best-performers in the first quarter. “Many investors expected tax cuts to benefit smaller stocks, which were viewed as less likely to be affected… Read More

The Most Expensive Investing Factor

By Jack Forehand, CFA (@practicalquant) —  Factor investing is a long-term pursuit. Successfully following a factor-based approach is a function of studying what works over time, implementing it in a disciplined way, and then staying the course through what will inevitably be long periods of underperformance to achieve your long-term goals. Because factors can move in and out of favor for extended periods of time, implementing timing strategies to move in and out of factors… Read More

BlackRock’s Ang Favors Momentum

In a recent interview with Barron’s, BlackRock’s head of factor investing Andrew Ang said he favors momentum stocks. Here are some highlights from the interview: While Ang does not believe in market-timing in and out of factors, he leans toward a “multifactor combination” and rotation of factors throughout an economic cycle. “Our biggest theme,” he adds, “is that we are overweight momentum. Momentum has momentum itself right now.” He mentions the FAANG stocks as major… Read More

The Most Hated (And Most Loved) Investing Factor

By Jack M. Forehand (@practicalquant)  —  Factor investing requires a lot of patience. Despite the fact that research shows that many factors can produce outperformance over long periods of time, all of them will struggle at times in the short-term. And those struggles are typically long and difficult enough that most investors will abandon underperforming strategies in favor of what is working now. When that happens, that typically signals a bottom for the factor is… Read More

Lessons From Over a Decade of Managing Money Using Quant Strategies

By Jack Forehand — When we started managing money, I used to focus on what I knew. Today, after over 12 years doing it, I have learned it is best to focus on what I don’t know because no matter how much you learn in this business, what you don’t know will always far exceed what you do. Looking back on everything I’ve learned, I’m pleased to say that the principles I initially believed have… Read More

Smart Beta Investing May Not Be So Smart

A new study has raised questions as to whether smart beta mutual funds, which are on course to reach $1 trillion in assets by the end of 2017, are as “smart as they claim to be,” according to a recent article in the Financial Times. The article quotes University of Finland finance professor Antti Suhonen, who led the research, from his report (published in May): “Investing in smart beta does require good investor education, due… Read More

Study Reveals New Predictive Factors for Stock Performance

A recent study by finance professors at the University of Missouri and Renmin University of China set out to analyze the predictive power of more than 18,000 factors with respect to stock performance over past decades, according to a recent article in Barron’s. “That’s good news for stock-pickers,” the article reports, adding that some of the more familiar clues (such as price-book ratio, for example) rank “surprisingly high in predictive power.” Topping the list, it… Read More