What I’d Like to See More and Less of in 2021 (Part Two)
This is part two of a three-part series. Part one appears here and part three will appear next week.
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This is the second in my series about what I’d like to see more and less of in 2021.
More evidence-based investors
The shift from active to passive over the past three decades has been impressive. According to this working paper by authors associated with the Federal Reserve Bank of Boston, passive investing in U.S equity funds increased to 48% in March 2020 from less than 5% in 1995.
I’d still like to see more investors abandon stock picking, market timing and trying to select outperforming actively managed mutual funds.
The evidence is so clear that doing so is an intelligent, responsible way to invest.
Less growth outperformance. More value and small outperformance.
Over the past 13 years, value stocks have significantly underperformed growth stocks. I’d like to see the reemergence of the value premium.
Many investors tilted their portfolios towards value stocks based on the research of Fama and French, who concluded that value stocks, and particularly small-value stocks, were likely to outperform growth stocks and the market as a whole over time.
There are many reasons for this underperformance and much debate over whether the value-stock premium is shrinking or even disappearing.
I don’t care. I want to see the reemergence of the value premium.