Commentary

Exploring Defined Outcome ETFs

Defined outcome ETFs have quickly gathered almost $5 billion in assets; Not unexpected given their much lower drawdowns when the market crashed in March 2020; However, they are complex and expensive products and there are viable alternatives.

Commentary

Picking Highly Profitable Businesses Can Be Unprofitable

Evaluating the unusual characteristics of the profitability factor

Commentary

Improving the Odds of Value

Value investors earn a premium for holding undesirable stocks. Market skewness may identify periods where the premium is more attractive. The returns from the Value factor since 1926 were zero when market skewness was negative.

Commentary

Factor Exposure: Smart Beta ETFs vs Mutual Funds

Do Active Managers Provide Higher Factor Exposure than ETFs? Investors can express factor views via smart beta ETFs or mutual funds. Some mutual funds offer higher factor exposure than smart beta ETFs. Given higher fees, strong views on expected factor performance are required.

Commentary

Value Factor - Improving the Tax Efficiency

The tax efficiency of the Value factor can be improved by reducing exposure to dividend-yielding stocks. Improving the tax efficiency reduces the performance in Europe and Japan, but not in the US. Reducing turnover can be considered for minimising capital gains and stamp duty taxes.

Commentary

Dividend Yield Combinations

Buying high yielding and selling low yielding stocks is not an attractive strategy. Combining Dividend Yield with Quality & Growth factors improves the performance. Interestingly Dividend Growth adds relatively little value.

Commentary

Hedging Market Crashes with Factor Exposure

None of the factors consistently generated positive performance during recent market crashes. However, almost any factor exposure would have increased the risk-return ratio of an equity-centric portfolio. Low Volatility and Mean-Reversion would have been most beneficial. Momentum least.

Commentary

Factors and Interest Rates

Analysis of factors and interest rates, which highlights that there are no consistent relationships between Value, Size, Momentum and interest rates in the US. Applies to high and low and increasing and decreasing rate environments.

Commentary

Value Us Sectoral Analysis

Analysis of the Value factor in the US by sectors. Using price-to-book (PB) or price-to-earnings (PE) results in similar Value factor performance. Some sectors are perpetually expensive while others are always cheap. Sector rotation is higher with PE than with PB.