Small-cap stocks have underperformed the broader markets since the “discovery” of the size premium in 1981. But research shows that a segment of those small-cap stocks have performed well and that now is a compelling time to invest in them.
The data used to construct ESG portfolios differs widely among providers, meaning that funds may not be aligned with your clients’ objectives and beliefs.
The top-heavy outperformance of the FAANG stocks is not a historical anomaly, but history shows that they are likely to be tomorrow’s underperformers.
Evidence from the field of behavioral finance suggests investors can’t handle the truth – many delude themselves about their own skills and performance. The ability to delude oneself leads to persistent and costly investment mistakes.
What happens in Vegas, doesn’t stay in Vegas; it makes its way to Wall Street. New research shows that gamblers who profit from football betting invest more heavily in lottery-like stocks.
My 2007 book, Wise Investing Made Simple: Larry Swedroe’s Tales to Enrich Your Future, contained 27 tales to educate investors about important investment concepts and strategies. This article is in the spirit of those tales.
If beating the market was as easy as becoming a top tennis player, there would be a lot more Serena Williams and Roger Federers. The lessons of acquiring skill in tennis are crucial for investors to heed.
It is well-established that “lottery” stocks – those offering the potential for outsized returns, like penny and growth stocks – deliver poor performance. While one might expect that naïve, retail investors are the ones buying those stocks, new research shows that is not the case.
Every January, I start keeping track of the predictions for the upcoming year I hear in the financial media and from advisors and investors. With the arrival of the fourth quarter, it’s time for my third review of how those forecasts played out.
Sports betting and financial markets have a lot in common. The wisdom of the crowd is setting prices and the markets are highly efficient, making it difficult to outperform.
In investing, as in fashion, fluctuations in attitudes spread widely without any apparent logic.
Investors underestimate the negative consequences of high environmental, social and governance (ESG) risks, and underreact to prior negative ESG events. High ESG risks destroy shareholder value.
New research disproves a pearl of conventional wisdom – that a move to a democratic form of government is good for investors in that country.
Research based on Morningstar’s “globe” ratings, which measure a fund’s adherence to ESG standards, shows that most conventional funds indeed prioritize sustainability in their mandates, and that highly rated, five-globe funds don’t perform any better than one-globe funds.
The data used to measure a company’s compliance with ESG guidelines is inconsistent and leads to misleading results. Moreover, when teams at the same company manage comparable ESG and non-ESG funds, the former more often underperforms the latter.
Active managers persistently lag the returns of benchmarks and index funds that track them, with the excuses for underperformance recycled every year. We are going to discuss a book, The Incredible Shrinking Alpha, which is the antidote for the active managers’ siren song. It will reinforce your commitment to indexing or systematic investing, while increasing your knowledge. Larry Swedroe, my guest today, and Andrew Berkin, are co-authors of The Incredible Shrinking Alpha, the second edition of which has just been released.
Assessing a company’s ESG behavior is a qualitative, subjective undertaking. New studies show that the major firms that issue ESG “ratings” use sufficiently different criteria, which results in unreliable research findings when their databases are used.
Factor-driven investing, while highly popular among equity investors, has not been as widely adopted in the bond market. But research shows that a factor-based approach to bond investing is superior to attempting to identify top-performing active bond managers.
Non-profit endowments, particularly those of elite academic institutions, have failed to deliver investment outperformance. Those colleges and universities have significantly underperformed a passive benchmark on an absolute and risk-adjusted basis.
One explanation for the underperformance of the value factor has been that the growing importance of intangibles, and the failure of the accounting system to record their value on financial statements, renders value measures anchored to current financial statements, such as book value, useless. New research shows how to address this failure.
Americans are working longer for financial reasons – they can’t afford to retire. But what few realize are the enormous economic and social benefits that accrue to those workers and the companies they serve.
Investors have no chance of adding alpha by pursuing an “endowment” model. New research shows that even the most sophisticated institutions do worse when they increase exposure to alternative asset classes, and that investors would be better served with a passive, 60/40 allocation.
How would Buffett be viewed if, instead of being the chairman of Berkshire Hathaway, he ran an open-end mutual fund by the same name?
Investors have no chance of adding alpha by pursuing an “endowment” model. New research shows that even the most sophisticated institutions do worse when they increase exposure to alternative asset classes.
Large-scale studies have shown that actively managed funds underperform their passive benchmarks on an absolute basis. New research shows that this is also true on a risk-adjusted basis – and this is true across asset classes and sub-classes.
The recent poor performance of value funds has led some investors to illogically shift to products with less exposure to the value factor. The evidence that the value factor has worked over long periods of time means you want more exposure to it, not less.
New research shows that companies that adhere to positive ESG principles have lower costs of capital, higher valuations, are less vulnerable to systemic risks and are more profitable. But beware; those higher valuations translate to lower expected returns for investors.
One of the most popular and successful strategies over the last decade has been low-risk (i.e., low-beta or low-volatility) investing. New research shows that those strategies have persisted even after the publication of the research documenting their existence, and that they can be pursued in low-cost, low-turnover portfolios.
Given the dramatic underperformance of value stocks since 2017, it’s understandable that many are abandoning the strategy, believing that the premium has vanished. But, studious observers of market history know that value faced similar death sentences previously, only to undergo a rapid reincarnation and deliver spectacular returns.
A new study examined the impact of emotions on investments, financial risk and life in general, providing important insights and lessons for advisors.
The poor performance of the Fama-French factors over the last decade has led many to question the existence of the premiums. But new research shows that those 10 years were not unique, and that factor-based investing have prevailed following periods of underperformance.
With lower expected returns on the horizon, endowment managers are questioning whether standard annual spending rates will be sustainable and whether certain spending formulas are better suited for the muted environment investors face.
Every January, I start keeping track of the predictions for the upcoming year. With the arrival of the second quarter, it’s time for my first review of how those forecasts played out.
Of all the disruption inflicted on the capital markets, negative interest rates cause the most head scratching. Why would anyone invest with the certainty of a loss? New research explains the perverse behavior induced by negative rates – and offers a stern warning for investors.
Despite the important role financial advisors play in the design of client portfolios, we know very little about how those portfolios are constructed. New research shows, however, that the model portfolios used by advisors suffer from a number of structural inefficiencies.
Advisors had little use for actively managed funds over the recent bull market; index funds did exceptionally well. But just when those actively managed funds were most needed – over the recent market downturn – they failed to protect investors.
Here’s why the market crashes even without more bad news, like it did in October 1987 and from late 2007 through March 2009. But this time is different because there is a new set of actors on the stage, exacerbating the problem.
Beware of companies that rapidly grow their assets on their balance sheets. The stocks of those companies are more likely to “crash” over the next three to five years, according to newly published research.
The unexpectedly large number of swings that follow a shock are generally just noise – the interaction of panicked sellers and greedy speculators trying to find the bottom – but should be expected, as aftershocks tend to cluster following a shock.
Small-value investors can choose between index funds and passively managed, structured products. While index funds have lower costs, they don’t offer the same degree of exposure to the small-cap and value factors. Here is how that difference has played out in three prominent funds over the last eight years.
The popularity of ESG investing strategies has driven up the valuations of those stocks. New research shows that ESG investors should brace themselves for lower returns – and that underperformance may come at the worst possible time.
There are predictable patterns in security returns that conflict with market efficiency. If there are behavioral explanations, these are called anomalies. A new study looks at whether “insiders” exploit those anomalies – and whether investors can benefit from observing insider trading patterns.
In recent years, U.S. stocks have far outperformed international stocks, and growth stocks have far outperformed value stocks. That has led many to question the benefits of diversification and ask what they should do when an investment strategy performs poorly. This podcast will answer that question.
Over the past decade, and particularly over the last several years, there has been a dramatic increase in ESG investing strategies. That has coincided with robust economic and market performance in the U.S. New research examines whether strong ESG returns are likely to be tied to a strong economy and market.
Every January, I start keeping track of the predictions for the upcoming year I hear in the financial media and from advisors and investors. Today we’ll look at a list of “sure things” I’ve been hearing for 2020.
With all the attention that is paid to macroeconomic variables and forecasted growth, it’s vitally important to understand the role that the economy plays in portfolio returns – in particular, the returns of the value, beta and size factors.
At the start of 2019, I compiled a list of predictions that so-called “gurus” had made for the upcoming year for a consensus on the year’s “sure things.” It is now time for my final review.
New research confirms that stocks with high projected earnings growth underperform those with low projections. This anomaly is due to underlying behavioral biases that also explain why value has underperformed growth over the last decade – and why value is poised for a reversal.
Since 2002, S&P Dow Jones Indices has published its SPIVA reports, which compare the performance of actively managed equity funds to their appropriate index benchmarks. It also puts out a pair of scorecards each year that focus on persistence of performance. Here are the latest results.
Quantitative value investors have traditionally relied on price-to-book as the metric to classify stocks. But new research shows that price-to-enterprise value is a more powerful tool to construct portfolios. That research also sheds light on the question of whether the value premium is risk- or behaviorally-based.