Results 151–197 of 197 found.
Does Blame Predict Performance?
As an econometrician and a fund-of-funds portfolio manager, I spend much time researching quantifiable metrics to help me identify managers who can outperform consistently. There is, in fact, a rich body of literature exploring different manager selection criteria. Academic papers have considered portfolio manager attributes, such as tenure, the CFA designation, advanced degrees, and even SAT scores; they have also examined fund characteristics, such as portfolio turnover, expense ratios, and assets under management.
Wait for Your Pitch in Today's Market
Great hitting in baseball depends in part on waiting for the right pitch. In today's market, most asset classescoming off their impressive 2012 recordare "high and outside" the valuations necessary for future big league returns. Patience is the name of the game today.
From QE to Queasy: Fiscal Policy and the Risk of Inflation
Quantitative easing does not directly cause inflation. Rather, by enabling the government to issue low-cost debt, it fosters undisciplined spending, says Jason Hsu, CIO of Research Affiliates, LLC in this commentary. This spending, in turn, generates inflation, transferring wealth from future taxpayers to the current generation. Hsu argues that Americans are more likely to follow the European model of insufficient saving than to imitate the Japanese practices of private sector belt-tightening, high savings rates, and international lending.
Making Sense of Low Volatility Investing
Why do low volatility stocks outperform riskier ones over time? Dr. Feifei Li, our Head of Research and my long-time collaborator, has focused on understanding the theoretical foundation underpinning the low volatility anomaly and documenting the strategy's risk-return characteristics in developed and emerging markets. In this issue of Simply Stated, our newsletter focusing on investor education, she summarizes the literature on the low volatility effect as well as provides additional insights from her own research based on an expanded global data set.
Truth vs. IgnoranceThe Impactful Investment Manager of Tomorrow
Ignorance in investing can have devastating consequences for individual portfolios and personal wealth. Too often, capital market participants have little knowledge of how markets work, how to make investment decisions, or how to manage their portfolios. This month's Fundamentals explains how investment managers can add value for their clients through insight and education combined with the quest for alpha.
Year-End Capital Markets Forecast
What looks best for 2013? Given financial repression in developed marketspolicies that prolong negative real interest ratesemerging market local currency sovereign bonds are likely to outperform their developed market counterparts. For equities, both developed (ex-U.S.) and emerging markets offer more attractive valuations and better dividend yields than U.S. stocks.
The Death of the Dollar?
Rob Arnott, Chairman and CEO of Research Affiliates, has released an "Insights" paper in which he discusses the possible "Death of the Dollar" in the decade ahead. He points out that: "If we're spending $1 trillion a year more than we produce as a nation (the national deficit) and are financing it by printing $1 trillion a year of crisp newly printed bills (actually, bits in a computer), we're on a dangerous path. Printing our own money to buy our own debt works fine until it doesn't."
For the second half of the 20th century, U.S. gross domestic product growth averaged 3.3% per year. This growth was driven by a combination of rising population and employment rates and increased productivity. But all three of these factors are slowing or declining. What does this mean for future growth?
The Role of Risk in Asset Allocation
A traditional asset allocation framework allocates to various asset classes with the goal of matching important risk exposures. In reality, many asset classes share exposures to common risk factors and thus are highly correlated, particularly with equities. This article explains how investors can achieve more intuitive and perhaps more sensible portfolios with an approach based on risk factors.
Eggs Are Not Enough: The Truth About Diversification
We learn in finance theory that diversification simply means not putting all your eggs in one basket. Simple as the idea is, most investors do not hold portfolios that are even close to being truly diversified. Two reasons make this sensible objective difficult to achieve. First, most investors are not disciplined enough to implement diversification. To illustrate my point, pause and check whether you are willing to reduce equities when the trailing 12-month return on stocks is 20+ percentage points higher than bonds?
The Glidepath Illusion
Young adults should buy stocks; mature adults should favor bonds. Or so we're taught. In this month's Fundamentals, Rob Arnott takes a serious look at Glidepath strategies used within target-date funds and comes up with some surprising findings.
Tomatoes and the Low Vol Effect
For the past 40 years, investors have focused on how much their returns varied from both a benchmark and their peers. Given the volatility of recent years, some investors are thinking about returning to a different approach to riskthe risk of losing money. This shift in thinking requires a very different approach to equity investing.
Why We Don't Rebalance
Research makes a compelling case that investors should rebalance their portfolios, yet most investors do not do so. Why not? The answer is less about behavioral mistakes and more about the fact that rational individuals care more about other things than simply maximizing investment returns.
Many of us in the investment management business are fond of telling our clients that "hope is not a strategy." Ironically, selling hope has worked out to be a fantastic strategy for investment managers. In our new newsletter, "Simply Stated," I suggest that investors may want to think twice about how much they are willing to pay for hope.
Most investors measure wealth in terms of the value of their portfolio. We believe it is better to measure wealth in terms of the portfolios ability to support sustainable spending. This months Fundamentals explores why this approach requires courage.
The Newlyweds Dilemma
Before marriage, men and women enjoy a lot more free time. Married life represents a huge shift in their habits and schedules. Similarly, a new world of lower expected returns signals a major break from mainstream investment approaches. This months Fundamentals examines how investors can position their portfolios for the future.
Should you be Concerned About the U.S. Government Debt?
Should investors be concerned about the size of the U.S. government debt? Does it matter who owns the debt? This months Fundamentals, authored by Research Affiliates CIO Jason Hsu, examines the implications for future consumption and investors portfolios.
Dirt Economics: Demographics Matter!
Generations ago, people had large families, ensuring an adequate supply of labor to work the farm and provide a comfortable retirement. Now, families are small and we face a mountain of debt and soaring deficits. This months Fundamentals examines the implications for the economy and investors portfolios.
A Slippery Year for Excess Returns
Last year, securities prices moved like a school of sardines. That environment made life difficult for both active managers and the Fundamental Index approach. This month's Fundamentals examines what happened in 2011 and the opportunities for breaking loose this year.
De-stressing Balanced Fund Investing
Balanced fund management has largely become a benchmark-hugging exercise, with asset allocations confined within a tight band. This month's Fundamentals examines what can be done to improve the added value investors can obtain from balanced fund investments.
Alternative BetaThe Third Choice
New research by Research Affiliates finds that leading alternative beta strategies, including the Fundamental Index approach, outperform capitalization-weighted index funds over time. However, investors should closely examine their respective implementation costs, such as turnover and capacity constraints.
The Long ViewBuilding The 3-D Shelter
The third quarter was harsh not only for stocks but for asset classes that provide valuable protection against inflation. Our view is that, in the long run, the combination of rising debts and deficits and aging demographics will create a 3-D hurricane affecting capital markets. In this issue of Fundamentals, we look at how investors can start erecting inflation shelters to protect themselves from the coming storm.
King of the Mountian
Despite the market turmoil of the past two years, U.S. equity valuations continue to resist gravity. In this issue of Fundamentals, we look at the potential consequences of understated inflation and too-low real interest rates, combined with an accommodative Fed policy. What does that mean for the stock market?
Inevitabilities - One Down, More to Come
With government sponsored post-retirement safety nets increasingly looking not so safe, the implications for U.S. retirement assets are vast. According to the Investment Company Institute, the U.S. retirement market stood at $18 trillion at the end of the first quarter 2011, or 37% of household net worth. This pool of assets will soon be asked to do much, much more. Unfortunately, this greater load sharing comes at a time when capital markets are priced to deliver shockingly anemic returns. But we can start planning for the burden now.
The Trouble with Quants
Quant managers often over-engineer their products. When these products collapse, they leave investors confused and upset. On this fourth anniversary of the August 2007 Quant Meltdown, we look at what lessons can be learned from the past and how they may apply to some current investment strategies.
Equity Allocations: Thinking outside of the Box
In this issue we will look at a different way of constructing the equity portfolio. We will use the concept of active sharea measure of how much active equity portfolios actually deviate from their benchmark indexesas well as what active share tells us about the standard equity structure alternatives. The success of an investors overall portfolio is highly dependent on how well the equity component performs; stocks are the largest allocation in most portfolios, on average half of assets or more. Therefore, paying special attention to the equity strategy decision is very important.
Whack! Today's Misaligned Manager Selection Process
An old golfing adage proclaims: Drive for show and putt for dough. Hiring winning active managers is fun and sparks interesting cocktail chatter. But this is an incredibly difficult and time-consuming skill to learn. We prefer alternative beta strategies, which often display the benefits of the best active managers, are far easier to research, and generally are available at a far lower cost. By no means are these strategies gimmes, but, they should help investors avoid the double bogeys of active management and traditional passive management, giving them a better chance of beating par.
The 3-D Hurricane and the New Normal
Debt, deficit, and demographics?the 3-D hurricane? is heading to the shores of all developed economies. It threatens to derail the economic recovery and to alter forever the heretofore path of robust growth for the developed world.Emerging economies with healthy government and household balance sheets, responsible fiscal policies, and young labor forces will be the drivers for global growth and will compete with their developed counterparts for economic and political leadership. More importantly, the emerging economies will demand their fair share in the consumption of resources and goods.
Sector Weights: On Average Wrong, but Dynamically Right
The markets have been through an extraordinarily volatile period the past five years, beginning with strong equity returns in 2006?2007, followed by the Global Financial Crisis (GFC) in 2008, and the subsequent Mother of All Recovery rallies in 2009?2010. Talk about a full market cycle! During this period, energy and financial stocks have experienced dichotomous lives. Energy stocks jumped 10% per year and led all sectors of the market. Meanwhile, the GFC pounded financial stocks. To be fair, some financial institutions caused the GFC. The other nine sectors all outperformed the broad market.
Does Unreal GDP Drive Our Policy Choices?
Gross Domestic Product is used to measure a country's economic growth and standard of living. It measures neither. Unfortunately, the finance community and global centers of power are wedded to a measure that bears little relation to reality, because it confuses prosperity with debt-fueled spending. Washington is paralyzed by fears that any withdrawal of stimulus, whether fiscal or monetary, whether by the Administration, the Fed, or the Congress, may clobber our GDP. And they're right. But, GDP is the wrong measure.
The Biggest Urban Legend in Finance
Stocks ought to produce higher returns than bonds in order for the capital markets to ?work.? Otherwise, stockholders would not be paid for the additional risk they take for being lower down the capital structure. It comes as no surprise, therefore, that stockholders have enjoyed outsized returns for their efforts for most - but not all - long time periods.
Little Things Make Big Things Happen
People are often surprised when we explain that our Fundamental Index methodology utilizes trailing five years of financial data to determine fundamental weights. Why give any weight to 2006 data when we already have data from 2010? We understand that individual companies often experience results in a given year that are far ahead or far behind where they were five years ago. Google and Ford provide two vivid examples. However, history clearly shows that relying solely on the most recent financial information leads to worse performance than using stale data.
The RAFI Five-year Scorecard
When the Fundamental Index concept was introduced, it was met with fierce attacks. Critics decried its backtested results as data-mining or said the approach was just a repackaged value investment process. Five years after the first RAFI indices went live, the proof is in: The methodology has generated superior performance during a period when value has lagged growth all over the world.
A Smoother Ride for Target-date Funds
Asset allocation is a critical step in the asset management process. No matter how diversified the portfolio, risk and reward aren?t linear. But target-date funds tacitly assume they are! Just because you are willing to take more risk doesn?t preordain higher returns, even over decades-long stretches. Rather, managing risk should be done either explicitly with active asset allocation of the glide path or implicitly through the natural contra-trading embedded in the Fundamental Index approach.
Hope is Not a Strategy
Most pension funds and 401(k) calculators assume total returns in the 7-8 percent range. Is this assumption realistic, however, with a mature economy saddled with unprecedented debt levels and an aging workforce? This commentary examines retirement plan assumptions and calculates that we can reach this return level only if we assume top quartile results for stocks, bonds, and alternatives over the next 10 years. That's like expecting a decade of sunshine in the markets.
Are 401(K) Investors Fighting Yesterday's War?
It is time for investors and their advisors to look forward, not backward, in their 401(k) investment planning. Inflation is the biggest single enemy to long-term investors. A portfolio of real return assets balanced with a stock- and bond-heavy 401(k) fund menu is the best way to build a portfolio for an uncertain future. To do this, one needs to include inflation hedges before inflation strikes and when they are least costly.
Debt Be Not Proud
The looming sovereign debt crisis may be the defining influence on capital market returns over the next 10 years. Greece recently hit a wall and had to break a lot of promises to its citizens, including retirees and prospective retirees from government employment. Greece certainly won't be the last. An exploration of the relationship between sovereign debt levels and the economic might of debtor nations reveals a scary situation, particularly for investors who cap weight their government bond market exposure.
The Style Roulette and RAFI Strategy
The style merry-go-round (where value and growth are alternatively in favor) provides ample opportunity for investors to be their own worst enemy, even within the supposedly balanced broad market indexes. Make no mistake - cap-weighted index funds are stealthy returns chasers loading up on past winners. A simple periodic realignment back to financial size remarkably captures over 100 percent of a perfect style timing strategy in three major non-U.S. equity asset classes.
Too Big to Succeed
Can companies become 'too big to succeed?' When you're number one, you have a bright target painted on your back. Competitors are gunning for you. Governments and pundits are gunning for you. In a world that generally roots for the underdog, hardly anyone outside of your own enterprise is cheering for you to rise from world-beating success to still-loftier success. Indeed, past returns suggest that an investor could do rather well by investing in the Russell 1000, minus its 12 sector leaders, thus cancelling the corrosive influence of competitors, populists, and pundits.
An Emerging Conundrum
Emerging economies have nearly doubled relative to the developed world since the mid-1990s. Despite this growth, however, emerging financial markets have performed relatively poorly over the long term as measured by the traditional indices. This gap between emerging market economic and stock market performance is a direct result of the return drag from capitalization weighting. Often, one, two, or at most a handful of stocks dominate local emerging markets. Not once have these large capitalization stocks collectively outperformed the rest of the market over a five-year period.
Fifty Years of Popularity Weighted Indexing
For all but a few, fame and favor is fleeting. This holds true for fashion and for stocks. The top of the capitalization index is filled with companies that are at the height of their popularity and, judging by the amount of fallen angels, due for a fall. By contrast, the fundamental index approach, which selects stocks based on economic scale rather than market capitalization, is immune to the way that popularity pushes select stocks' prices - and portfolio weights - into the stratosphere.
The Folly of Peer Group Analysis
The global financial crisis has led to a significant remake of the active manager opportunity set, but don?t let the ever-shifting sands of survivorship and backfill biased peer group returns fool you. Indexing is a smart bet. Importantly, if you want to be a ?survivor,? remember the biases of peer groups because what may look like a smart active manager ?alliance? could turn out to be a vote off the island of investment success?caveat emptor!
Lessons from the 'Naughties'
Sizeable real returns will be difficult in this decade, as they were in the last. Almost all asset classes are priced richly relative to historical norms. We can tilt the odds back in our favor, however, by tactically altering our portfolio risk based on measures as simple as yields and yield spreads. The surest path to success marries tactical asset allocation with a more efficient beta, such as the Fundamental Index methodology, and a full toolkit of alternative markets.
Discounts and Relative Performance
Arnott reviews the methodology behind fundamental indexing. Over the short term, fundamental indices take on much greater exposure in volatile markets to companies which underperformed relative to their economic size. This article explores the performance implications of the difference in relative valuation multiples.
Results 151–197 of 197 found.