By Jack Forehand (@practicalquant) — One of the major challenges that the finance community has faced over the years is how to explain what drives stock returns over time. If the market is efficient, then the only way to generate excess returns is to take more risk. But risk only makes sense to take if you get compensated for it. Determining which risks receive that compensation has been the subject of significant research in the… Read More
By Jack Forehand (@practicalquant) — Factor Investing poses some interesting challenges for wealth managers. On one hand, the evidence is very strong that investing using factors produces superior to returns to market cap weighted indexes over the long-term. On the other, factor strategies introduce another set of behavioral problems for clients because the extended periods of underperformance that are common in factor investing can lead to bad decision making and underperformance relative to index funds… Read More
By Jack Forehand (@practicalquant) — ETFs are both the present and the future of asset management. The combination of lower fees relative to mutual funds, tax efficiency, transparency, and intraday liquidity that they offer has led to rapid growth in the space. Although ETF assets still pale in comparison to mutual funds, it is hard to argue that they aren’t on their way to surpassing fund assets in the future. Despite the popularity of ETFs,… Read More
By Jack Forehand (@practicalquant) — There may not be a more polarizing topic in investing right now than cryptocurrencies. On one side, believers in the technology think it will change the world and will generate massive investment returns for those who invest in it. On the other, many believe that even after the recent significant declines, any money invested in the space is bound to be lost. Because of the strong opinions that exist on… Read More
By Jack Forehand (@practicalquant) — Artificial intelligence and machine learning are going to change investing in many ways. The ability of computers to think, analyze data, and react more and more like human beings has the potential to change everything from how advisors interact with their clients to how investment strategies are created to the fees that are charged for investment advisory services. While very few people dispute the potential for these technologies in investing,… Read More
By Jack Forehand (@practicalquant) — It has been a long time since inflation was a major issue in the US economy. Unless you have been investing forty years, you have likely never experienced a situation where inflation was a significant concern for your portfolio. But with the federal deficit rising and US government debt at historically high levels relative to GDP, many investors worry that the days of benign inflation and low interest rates are coming… Read More
By Jack Forehand (@practicalquant) — There are many misconceptions about private equity investing. Many investors view it as a domain where the rich and institutions earn outsized returns that are not available to the average person. It is viewed as an exclusive club with huge benefits that only the elite can be part of. But at its core, private equity is just investing in companies much like public investing is. It is a bet on the… Read More
By Jack Forehand (@practicalquant) — Factor Investing has proven itself over long periods of time. But there is a price that has to be paid for its outperformance. The individual factors such as value, momentum and quality all can have extended periods where they underperform the market. One way to smooth out the returns from the individual factors is to use them together in a multi-factor portfolio. When constructed properly, multi-factor portfolios can produce comparable returns… Read More
By Jack Forehand (@practicalquant) — There is probably nothing that hurts our investment returns more than our behavior. We spend a lot of time debating things like whether we should invest in active or passive funds or whether value or momentum is a better investing factor, but in doing that we often lose sight of the thing that studies have shown detracts from our returns more than all of that. The way we are wired as… Read More
By Jack Forehand (@practicalquant) — This is the first interview in our new Five Questions series. Each month, we will take an in depth look at a specific issue in the market through a conversation with a leading expert in the area. The goal of this series is to move beyond the high-level discussion typically available in the media and to learn from someone who has studied the issue in depth. In our first interview, we… Read More