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

Book Value – A Buffett Favorite, But Far From Perfect

Article Summary Warren Buffett reports Berkshire’s book value in Berkshire’s Annual Letter, but Buffett admits it is not perfect in determining the value of a firm. The price-to-book ratio is a popular factor, taking book value into consideration, but the effectiveness of this value factor has been fading recently. A prominent quantitative firm shows how share buybacks may be clouding price-to-book’s usefulness. The takeaway for investors is no factor is perfect. ———————- How does an… Read More

How to Invest Like Buffett but via Factors

As the debate continues concerning how quantitative model performance compares to that of active funds, a Bloomberg article from earlier this month discusses the findings of an AQR study that suggest how some quant models could generate returns that approximate those of legendary fund managers. AQR Capital Management, as described in the article, is a “program-driven investment firm whose founders made their names finding the math behind investment success.” The firm’s study compared the investment… Read More

Valuations Matter in Factor Strategies

It’s a familiar investment conundrum: when a strategy outperforms and more investors pile in, it can get more expensive and therefore be less likely to outperform going forward. This is discussed as it relates specifically to factor investing in a recent Morningstar article. Alex Bryan, CFA, director of passive strategies research (North America) for Morningstar, poses the question: “What if the apparent performance edge is not sustainable and investors are just relapsing into counterproductive performance-chasing?”… Read More