The Danger of Overscrutinizing Out of Favor Investment Metrics

By Jack Forehand (@practicalquant) —   No investing factor has been maligned more than the Price/Book in recent years. In a period where value in general has performed very poorly, the Price/Book has struggled more than any of the other common value factors. When you couple that with the fact that the Price/Book’s failure to account for intangible assets makes its validity questionable in a world where more than 80% of assets are intangible, you have a… Read More

When Hypothetical Becomes Real

By Jack Forehand (@practicalquant) —   The day you begin to follow a new investment strategy is typically a day of optimism. You have done your research, you have looked at the historical results, you believe in the investment process, and you expect to see similar returns in the future to what the strategy has done in the past. You have even potentially looked at the ups and downs of the strategy and are prepared for the… Read More

Be Cautious of Mutual Funds Run by Hedge-Fund Managers

A recent study has found that “mutual fund managers who also run hedge funds significantly underperform their mutual fund peers,” according to an article in Barron’s. The article cites comments by University of Oregon finance professor Diane Del Guercio, who analyzed the performance of approximately 600 funds at the top 30 fund families and found that, from 2005 to 2011, “mutual funds managed side-by-side by hedge funds underperformed peer funds by 0.8 to 2.2 percentage… Read More

Higher Fund Assets Can Lead to Poorer Fund Performance

Research recently released by Duke University shows that “greedy” funds with rising asset levels can return poorer performance for investors, according to an article in Institutional Investor. Evidence presented in a new study by researchers at Duke University and Texas A&M University indicates that “alpha diminishes significantly as individual funds grow and as industry assets under management rise,” the article says. Higher assets lead to higher income from management fees and profits, it says, but… Read More