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

Swedroe on What Makes Factors Last

In an article on ETF.com, BAM Alliance research director Larry Swedroe discussed issues related to factor investing, the potential problems with research around it, and the criteria he believes must be met to suggest that a factor will endure. According to Swedroe, a factor should first meet the following two conditions: Be a unique source of risk and return not explained by other well-documented factors already used in asset pricing models; Have delivered a premium… Read More

BAM’s Swedroe Discusses Size Effect

In an ETF.com article on size effect, BAM director of research Larry Swedroe discusses the ongoing debate on the size effect—the phenomenon whereby small-cap stocks on average outperform large-cap stocks over time–which was first documented by Rolf Banz in 1981 but “basically disappeared in the United States” after Banz’s paper. Here are some highlights of the article, which cites a variety of research including papers by AQR and others: Part of the size premium may… Read More

Swedroe on Active Management in Emerging Markets

In a recent article in ETF.com, BAM Alliance director of research Larry Swedroe debates claims that active management is the “winning strategy” in emerging markets. Citing SPIVA and Morningstar data as well as academic research, Swedroe makes the case that, “at least for investors who do not have access to institutional EM funds, active management is a loser’s game.” For example, writes Swedroe, SPIVA data shows that for the last 5-, 10- and 15-year periods,… Read More

Swedroe Talks Factors and Fixed Income

In a recent article for ETF.com, BAM Alliance director of research Larry Swedroe discusses how factor investing can apply to the bond market, even though it has been slower to gain popularity in fixed income compared to the equity market. The article cites a study by a team at AQR Capital Management that “applied the value, momentum, carry [the tendency for higher-yielding assets to outperform lower-yielding assets] and defensive style premiums to country and maturity… Read More

Swedroe Addresses Indexing Concerns

In a recent article for ETF.com, Larry Swedroe breaks down concerns regarding passive investing, including the notion that it has “become such a force that the market’s price discovery function is no longer working properly.” Swedroe, director of research for the BAM Alliance, makes the following points: A recent Vanguard study showed that, as of October 2017, $10 trillion was invested in index funds. “While a large figure,” Swedroe writes, “it represents less than 20%… Read More

Larry Swedroe: Value Premium Still Exists

In a recent article in ETF.com, BAM Alliance’s director of research shares insights on the state of the value premium in today’s market. Swedroe explains that “even though the value premium has been quite large and persistent over the long term, it’s been highly volatile” (citing data from Dimensional Fund Advisors). He adds, however, that a long period of value underperformance “should not cause investors to abandon a well-developed plan” or question whether the value… Read More

Can Active Investing Still Generate Alpha?

Back in 1984, Warren Buffett wrote an article entitled “The Superinvestors of Graham-and-Doddsville” (referring to the book Security Analysis co-authored by Benjamin Graham and David Dodd) in which he argues that passively managed funds can generate alpha for investors (beat the market) more so than actively managed funds. In the July issue of Advisor Perspectives, Larry Swedroe bolsters this argument through a discussion of his book The Incredible Shrinking Alpha (co-authored with Andrew Berkin and published early… Read More

Comparing CAPE 10 with CAPE 5 or 6 — Market May Not be as Expensive as it Looks

Writing on ETF.com, Larry Swedroe of the BAM Alliance explains that the market looks less overvalued if one uses a period shorter than the commonly used 10-year period in applying the methodology of the Shiller cyclically adjusted P/E ratio (the CAPE 10). The reason for doing this is that “with the Great Recession causing the S&P 500 earnings to not recover to their 2007 level until 2010,” a 10-year period may include distortions created by… Read More

Comparing Active and Index/Passive Small-Cap Funds

Writing in Adviser Perspectives, Larry Swedroe of the BAM Alliance evaluates the performance of the 10 largest (by assets under management) actively managed small-cap funds over the period 2000-15 in comparison to the performance of small-cap Vanguard index funds and Dimensional Fund Advisors passively managed structured asset class funds, and also uses S&P Indices Versus Active (SPIVA) Scorecard data for a similar comparison over the 2005-15 period. His broader purpose is to investigate the claim… Read More