The Value Investing Strategy in Recessions and Recoveries

A recent paper by Research Affiliates highlights parallels among six bear markets in the U.S. that were accompanied by recessions to “improve our understanding of their unique risks and opportunities.” “We use these six episodes as case studies to explore the potential outcomes investors can expect when the market recovers,” the paper states, noting that its primary focus is on implications for value strategies. The six events are as follows: Vietnam War Nifty Fifty bubble… Read More

Research Affiliates Analysis Shows Weak Factors

A recent paper based on analysis by Research Affiliates shows that once research data is analyzed outside the original sample period, about half the factors were “not robust,” according to an article co-authored by RA partner Juhani Linnainmaa, Ph.D. “Our motivation was the belief that some of the many factors identified have been data mined,” Linnainmaa said in an interview, explaining that researchers analyzing large databases collectively have an incentive to find a factor that… Read More

Research Affiliates Says Spread Factor Bets

At the 30th annual Morningstar Investor Conference held last month, passive strategist Adam McCullough interviewed Feifei Lee, director and global head of Research Affiliates Investment Management Group about her firm’s multifactor investment strategy. Here are some highlights: According to Lee, Research Affiliates offers investors a multifactor strategy that combines individual factor portfolios while remaining transparent with respect to which factors are under- or out-performing. The strategy employs five factors; value, momentum, low risk, quality and… 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

Morningstar Survey Results for Long-Term Stock and Bond Returns

A recent Morningstar article outlined the intermediate-term (10-year) market return assumptions of a group of industry leaders that responded to a recent survey: John Bogle, founder of Vanguard: 4% stock return, 3% bond return over the next 10 years. Bogle asserts that “future returns from the major asset classes will be muted. GMO: -4.4% returns for U.S. large caps over next seven years; 2% real returns for emerging market equities. The firm, the article points… Read More

Value Indexing: Don’t Chase Performance

In a recent interview conducted by Alex Bryan of Morningstar, Research Affiliates’ John West, head of client strategies, discussed a different approach to value investing in which holdings are weighted based on fundamental metrics such as book value and sales rather than market capitalization. West shared insights concerning the motivation behind the process and how it comprises a value approach: The motivation, West says, came from the tech bubble during which cap weighting of overpriced… 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

Is Value Investing Getting Short-Changed?

A report published last month by investment management firm Research Affiliates, LLC addresses the question of why value investing (a smart-beta strategy using value indicators such as CAPE or price-earnings ratios) has “fallen out of favor in institutional portfolios,” according to an article in Chief Investment Officer. The authors of the report argue that value investing is increasingly overlooked and that the “average” portfolio’s stock and bond holdings are comprised of 60% buy-and-hold in the… Read More

Brightman: EM Stocks Will Most Likely Trump US Stocks Over Next Ten Years

Chris Brightman CIO of Research Affiliates explains how his firms uses stock market valuations to project long term future returns. Brightman says the best returns over the next 10 years will most likely come from emerging market equities, places like China, Russia and Brazil, where valuations look much more attractive than US stocks. Brightman utilizes the Shiller P/E, which uses ten years’ worth of earnings as the denominator, in order to predict future returns. Many… Read More