Rob Arnott Expects Miniscule Returns in Next Decade

In contrast to the average 16% annualized returns the S&P 500 delivered over the past 11 years, Research Affiliates founder Rob Arnott expects paltry returns in the coming decade. This according to a recent article in Financial Advisor magazine. The article reports that, according to Arnott, “a traditional 60-40 portfolio is likely to deliver somewhere between zero and 1% over the next decade, a period when all baby boomers will have reached normal retirement age.”… Read More

The Misuse of Market Valuation

By Jack Forehand, CFA There is perhaps no piece of information that is more misused in equity investing than the valuation of the market. Whether someone has an agenda to show that the market is expensive, or that it is cheap, it is usually very easy to find data or a chart to prove their point.  Even for those who don’t have an agenda, it can be very easy to fall into the trap of misusing… Read More

State Pension Funds Face “New Normal”

A report from Pew Charitable Trusts shows that state retirement systems are adjusting their return expectations to lower levels over the next 20 years. This according to a recent article in Chief Investment Officer. The Pew report shows that from late 2007 to mid-2009, public pension plans lowered return targets due to changes in the long-term outlook for financial markets, adding that while the US experienced annual GDP growth of more than 5.5% from 1988… Read More

Prepare for Long Period of Low Returns

A recent article in CFA Institute offers insight from AQR’s Antti Ilmanen on how investors can adapt to a low-interest rate environment. The article reports that at a recent conference in Denmark, Danmarks Nationalbank Board of Governors chair Lars Rohde said it would be wise for “the financial sector and investors to prepare for a long period of very low interest rates.” “Past this point,” the article notes, “a brave new world awaits, one in… Read More

Emerging Markets Are a Buy

An article in Fortune reports that, while many including such finance experts as Jeremy Grantham of GMO, Mark Mobius and Rob Arnott of Research Affiliates sing the praises of emerging market stocks, “to commonsense civilians and other skeptics, they look and feel like a trap. Who’s right?” The article outlines some of the risks and opportunities inherent in EM: By wagering on China, Mexico and India, investors are “embarking on a potentially lucrative but almost… Read More

Six Precepts for the Long-Term Investor

On the subject of long-term investing, a recent Economist article outlines six precepts every investor should keep in mind: You can’t start too early—compounding is a compelling reason to start saving when you’re young, the article argues. Risk and reward are related, but don’t think the latter is guaranteed.Risk, the article explains, is not about volatility but rather about loss of capital. “That is why investors should always have some money in cash or government… Read More

Research Affiliates on the Dangers of Using Past Returns to Predict the Future

In the first of an eight-part series, Research Affiliates addresses market returns and the dangers financial planners face with respect to setting expectations for clients. Specifically, the article highlights the following key points: Using historical returns to forecast the future is one of the most common shortcuts in financial planning” although, the article points out, the topic hasn’t received the same attention as fees, the need for rebalancing, performance chasing, or diversification. The article addresses… Read More

Bill Gross Likens Market to Retirement Community

In an interview with CNBC earlier this month, Janus Henderson portfolio manager Bill Gross said that the stock market’s “halcyon days are over” as central banks around the world take away the high levels of stimulus they’ve provided over the past ten years. “I’m not supporting a bear market,” Gross said in the interview, “but sort of a market where you move into an old-age retirement community where the pace of activity and prices behave… Read More

Morningstar Ratings and Future Fund Performance

In a recent paper published by the firm’s quantitative research team, the Morningstar Rating, also known as the “star rating”, is summarized and evaluated with respect to accuracy. Morningstar now publishes star ratings on more than 217,000 managed investments across 72 countries. The rating system was introduced in 1985 to help investors and advisors better understand and assess the “crowded mutual fund landscape.” It evaluates the performance of a variety of funds (on a risk-adjusted… Read More

Returns Look Low Going Forward

“In an industry dominated by promises of higher return investors need to ask higher than what?” This question is posed in a recent Barron’s article (provided by Research Affiliates) which argues that many investors face less than 5% annualized returns on their retirement nest eggs over the next decade. The following portfolio types are discussed: Classic 60/40: This blend of U.S. stocks and bonds has been, according to the article, “perhaps the most comfortable to… Read More