Equal-weighted portfolios have long outperformed cap-weighted funds. Conventional wisdom is that was because of the small-cap factor, but new research shows more is at play.
Advisors can illustrate the risks in single-stock positions by educating their clients on the historical evidence that demonstrates diversification is the prudent strategy.
Markets provided investors with a dozen lessons in 2022 (and a bonus one in the postscript).
Countless investment practitioners and academics have unsuccessfully searched for the metric that can successfully identify future mutual fund outperformers. What follows is the saga of the latest failed attempt.
Contrary to what financial theory predicts, new research from Europe shows that the elderly accumulate assets later in life than expected, likely because they want to leave bequests, are receiving pensions, or are reluctant to part with assets such as their homes.
Private credit can be an attractive asset that has provided high yield and protection against the risks of rising inflation. In addition, the asset class has a strong credit history – specifically senior, secured, sponsored debt.
The economic tea leaves suggest that 2023 could be another challenging year for both stocks and bonds. However, the outlook is more balanced given that equity valuations are much lower and bond yields much higher.
It has been my tradition to informally rate the investment-related books I read in the past year.
New research reveals that stock prices revert to a predictable P/E multiple, which is a function of growth and profitability. It also shows why growth stocks, while more profitable than value stocks, earn lower returns.
Don’t trust analysis from managers that shows they have outperformed an appropriately selected, passive benchmark. That is true for mutual funds, and new research shows it is equally accurate when it comes to endowments and pension funds.
Socially responsible firms pay more for the external audits of their financial statements, thereby lowering risks to investors. But those lower risks also mean lower returns for investors.
While many investors think that IPOs are exciting, they are risky investments. Academic research shows overwhelmingly that the returns to investors are not commensurate with the risk.
For traditional fixed-income investors seeking higher yield and/or inflation protection, private, senior secured, sponsored debt provides an attractive alternative.
So-called low-volatility portfolios are an apparent anomaly – they appear to offer higher returns with less risk (volatility). New research shows that they are indeed uncorrelated to sources of macroeconomic risk. But their popularity has driven up valuations, dampening the prospects for future returns.
Assets have flowed mightily into ESG funds, and new research shows that many corporations have changed their behavior, with benefits accruing to society at large.
Daniel Kahneman and Richard Thaler won Nobel prizes for their work in behavioral science, propelling that discipline to the forefront of the advisory profession. But new research shows that behavioral science produces results that are no better than a simple model, and mutual funds based on it are no better than an index fund.
A well-established problem facing investors with an environmental, social and governance (ESG) mandate is the wide divergence of ratings assigned to companies by different vendors. New research shows that those stocks with the greatest divergence had higher performance.
For most of 2022, the VIX been above its average, which historically has led to lower equity returns. I will review the risks that investors face, which explain the continued high level of uncertainty.
Bond mutual funds trade daily and are highly liquid, but the underlying securities are often highly illiquid, trading very infrequently. This mismatch means that bond fund pricing is unreliable, creating risks, especially for buy-and-hold investors.
New research shows that portfolios that owned companies that provide climate solutions outperformed ones that owned firms with low carbon intensity. Before you adapt that approach, however, beware that this research relies on a small sample of data over a short time period.
Opponents of passive, index-based investing frequently claim that large-cap stocks are overvalued, and a market-cap-weighted index unduly exposes investors to those mispriced securities. That is a false statement.
The spectacular underperformance of the FAANGs this year came as no surprise to investors familiar with the history of growth stock bubbles. As happened in the lead up to the dot com and Nifty 50 bubbles, P/E ratios increased without any material justification.
Technology has made it possible for us to walk on the moon once again, yet academic research has failed to find a way to identify outperforming mutual funds. But a new study shows that may be possible.
New research shows that Forbes' annual list of the best companies to work for are also some of the best stocks to own.
Corporate debt offers attractive yields, particularly through an interval fund with limited liquidity. I compare one such fund, CCLFX, to more traditional, liquid mutual funds.
I often hear that indexing has become so popular that it is destroying “price discovery” – making it impossible for investors to know that they are paying a fair price for a security. Some say that makes indexing worse than Marxism. New research shows that this concern is unjustified.
New research shows the corporate performance has improved as their environmental practices have become better, while energy consumption and carbon emissions have decreased.
One obvious strategy in pursuit of an environmental, social and governance (ESG) mandate is to exclude fossil fuel stocks. But new research shows this has made the portfolio vulnerable to supply or demand shocks to energy.
Among the many factors cited in academic research, only a handful have been sufficiently reliable for use in asset pricing models. One of those is momentum. New research shows that it works globally – even in China, a country whose markets have not historically exhibited momentum.
New research measures of how market participants perceive a company’s exposures to climate change, based on earnings calls.
New research shows that screening for “green” environmental, social and governance (ESG) criteria has led to positive risk-adjusted returns for corporate bonds. High demand among investors for those bonds contributed to the outperformance, raising the question of whether it will be sustained.
Markets were exceptionally volatile during the first half of 2022, foreboding poor capital market returns. Here is a quick review of nine areas of heightened risks.
New research shows that the significant outperformance of ESG-driven investing over the last decade was due to a sharp increase in concern among investors for climate-related issues. Whether that outperformance continues will depend on even more heightened concerns over the environment.
Contrary to economic theory, in recent years funds with an ESG mandate have outperformed the broader market. New research shows that outperformance was caused by increased asset flows to so-called green stocks, raising the prospects for lower returns going forward.
The rising popularity of ESG investing has driven asset flows to green stocks. But new research confirms that the resulting higher valuations forebode lower returns for climate-conscious investors.
New research shows that positive returns to ESG portfolios from 2018-2020 were attributed to increased demand for “green“ stocks, raising the question of whether that outperformance will be sustained.
New research quantifies the implicit cost that investors incur when index funds, such as those tracking the S&P 500, are rebalanced. Those costs may be avoidable by adopting trading strategies that introduce the possibility of tracking error.
Our fiscal deficit, as measured by the debt-to-GDP ratio, has grown to levels that could impede growth, as predicted by financial theory and confirmed by empirical evidence. Moreover, new research shows that our burgeoning deficit could increase risk premiums for both stocks and bonds.
Shiller’s CAPE ratio is the most-cited predictor of long-term equity returns. But new research shows that the “Buffett” indicator does a good job of forecasting, and both ratios predict subdued, long-term returns for stocks.
Historical data shows that stock markets have reacted poorly when the Fed has contracted its balance sheet and reduced liquidity – and the effect is more pronounced when Fed actions deviate from what the market expects.
The historical data has shown that the value premium is smaller for large-cap securities than for small caps. But new research shows that large-cap investors can increase the premium by pursuing an equal-weighted strategy.
Investors seeking higher yields and relatively low risk, and are willing to sacrifice liquidity, will find attractive opportunities in interval funds that invest in senior secured, middle-market loans, such as those offered by Cliffwater.
After a multi-decade pause, the winds of inflation have picked up. Only TIPS have been an effective hedge against inflation. Other asset classes have failed to varying degrees.
The last decade and a half rewarded investors with healthy stock and bond returns. But high valuations, low interest rates and high inflation are signals to reassess risk tolerance and asset allocations.
Because 529 plans are exempt from SEC oversight, they can charge higher fees and use that revenue in ways that do not benefit plan participants. New research shows some states are guilty of this abuse.
The poor performance of factor-driven value strategies over the past decade has raised the question of whether intangible assets, such as patents and proprietary software, are properly treated. New research confirms that intangibles indeed distort valuation metrices, but there is no consensus on how to address the problem.
Macroeconomists have debated whether financial crises are predictable. New research shows that indeed they are – and are caused by the rapid expansions of credit accompanied by asset-price booms.
Economic theory says that “green” stocks – those of companies with a low carbon footprint – should underperform “brown” ones. But in recent years that has not been the case, and new research explains how cash flows to sustainable strategies have driven short-term outperformance.
Actively managed global allocation funds claim that skilled investment managers can produce a superior rate of return compared to traditional index funds. But the reality does not match the hype.
The extreme outperformance of commodities over the last several weeks has sparked interest in this asset class. New research finds that commodities are subject to lottery-like returns, providing information on future performance.