New research shows that private investments in public equities (PIPEs) offer attractive returns, but those are driven by a small number of deals that deliver exceptional returns (“home runs”).
New research confirms that institutional investors, such as mutual funds, outperform the market before fees, and they do so at the expense of retail investors. That is bad news for retail investors and for investors in active mutual funds, who underperform after fees.
A prominent fear facing investors with an ESG mandate is whether they must sacrifice returns to achieve their goals. New research shows that ESG-based municipal bonds deliver the same returns as those without a “green” mandate.
New research shows that the ESG portions of mutual funds underperformed the remainder of the funds and did so with higher risk. But the magnitude of those differences was small.
New research shows that funds that with an ESG mandate have factor exposures that differ significantly from the market, creating a challenge for investors who seek a specific factor loading for their overall allocations.
New research shows that Western countries, which have tighter regulations, have forced companies to move their pollution-related activities to other domiciles. That can be good news for ESG based investors, who reward those companies with a lower cost of capital.
Credit interval funds have become popular among advisors looking to increase the yield on their fixed-income allocations. New research illustrates the difficulty in quantifying the underlying fees in those investments.
ESG proponents claim that “green” high-yield bond returns offer better risk-adjusted returns. New research disproves this claim, although ESG investors do not incur a penalty by owning green bonds.
New research documents the abject failure of the vast majority of municipal bond funds to outperform a passive benchmark.
New research shows that a company’s history of bad ESG events foretells poor stock performance. That contrasts with other research showing that ESG ratings lack such predictive power.
Choosing a fund or ETF with a positive ESG profile is fraught with risk. New research shows how carefully investors must weigh considerations such as screening criteria, factor exposures, industry concentration and expenses.
New research has uncovered a paradox. Energy firms have been, by far, the most prolific producers of “green” innovations and patents. But those are the stocks that are routinely shunned by ESG investors. Are ESG investors’ goals aligned with their dollars?
Financial theory predicts that stocks of “green” or climate-friendly companies should underperform brown ones, but empirical evidence demonstrates that has not been the case. New research explains that paradox, showing that green stocks have had a temporary benefit from adverse climate-related news.
As predicted by theory, increased investor demand has resulted in higher returns for public stocks with good environmental, social and governance (ESG) characteristics. Unfortunately, that means future returns will be lower for those stocks. New research confirms that this is also the case for private “impact” investments.
Six competing vendors rate how companies perform along ESG standards. But because those ratings differ widely across vendors, investors cannot reliably construct portfolios that meet their personal criteria.
Evaluating an investor’s ability, willingness and need to take risk, and then designing his or her portfolio accordingly, are the most crucial functions of investment/financial planning and the “fintech” software that supports the profession.
Past studies found some evidence of persistence of outperformance in private equity and venture capital. But new research challenges those findings and makes a compelling case that advisors and their clients should proceed with caution in those assets classes, investing only when they are confident they have identified a compelling strategic advantage.
Proponents of the fiduciary standard claim that it will lead to better financial outcomes for clients. But a new study of Canadian advisors, who resemble U.S.-based RIAs but do not adhere to a fiduciary standard, casts doubt on this assertion.
New research shows that bonds from carbon-emitting (“brown”) companies have underperformed those of green companies during last 13 years, but, contrary to theory, they are riskier. Indeed, brown bonds may outperform in the future, as the temporary effect from increased investor demand subsides.
Funds with a socially responsible or environmental, social and governance (ESG) mandate may allow clients to feel good about their investments. But new research shows that they should not expect excess returns.
Since the global financial crisis, a new asset class has emerged that offers attractive yields – single-family rentals (SFRs).
Advocates of ESG investing may be disappointed to learn of a new research study showing that greenhouse gas emissions have had no measurable effect on corporate profitability or equity performance.
Investors following an ESG mandate can achieve their goals only if they can accurately and consistently identify stocks that meet their criteria. But new research shows that those criteria have been subject to arbitrary revisions and that there are wide discrepancies among the vendors providing the data.
High-profile episodes, such as that involving GameStop, have led some to advocate for banning short selling. But new research confirms that short sellers play a valuable role in keeping markets efficient and preventing prices from overshooting their intrinsic value.
Corporate executives often bemoan the cost of high regulation, but new research show that greater federal regulatory scrutiny has historically correlated with better stock performance.
SPACs have lured billions of investor dollars with the chance of sensational payoffs. But research shows that post-IPO investors have paid a huge price for relying on that overhyped hope.
New research shows that, since 2010, “green” stocks – those of companies with a low carbon footprint – have outperformed “brown” stocks. That may have been caused by increased demand from investors pursuing an ESG mandate, which means the effect is temporary and brown stocks now have higher expected returns.
There has been an explosion in academic research on the impact of implementing ESG on the risk and returns of equity portfolios. Research on fixed income, which has received less attention, shows that positive ESG scores correlate with lower yield spreads, decreasing future returns for bond investors.
Theory predicts and research has shown that positive ESG scores correlate with a lower cost of capital for companies, lowering the expected return on stocks. New research shows a similar effect in the bond market, with positive ESG scores correlated to smaller credit spreads, decreasing the yield to investors.
A fast-growing stock – what clients believe is the next Google – is likely to be a disappointing investment. New research, which validates the theory of behavioral economics, shows that “representativeness” explains why clients overweight stocks with high asset growth.
Investing based on ESG concerns should lead to lower returns, since the prices of those stocks will be bid up beyond their intrinsic value. But new research shows that by combining ESG- and momentum-based principles, investors can achieve higher risk-adjusted returns.
New research shows that hedge funds that proclaim to adhere to socially responsible investment principles fail to follow through on that commitment and they deliver inferior performance results. The same is true of institutional funds, although the evidence is weaker.
Advisors are well aware of the perils of chasing performance, especially when assets become clearly overvalued. New research, based on a variation of Robert Shiller’s CAPE ratio, shows that this is true at the country level.
New research shows that higher employee satisfaction leads to higher equity returns. That reinforces previous research showing that ESG principles should be an important aspect of advisors’ due diligence in fund selection.
A goal of environmental, governance and sustainable (ESG) investing is to reduce carbon emissions and improve the quality of the environment. New research shows this effort is succeeding.
Liquidity is valuable to investors. Therefore, they should demand higher expected return (a risk premium) for less liquid stocks. But new research shows they have not earned that extra return in public equity markets.
Over the last two weeks, we have seen how a cadre of retail traders on Reddit can lay siege on a group of hedge funds that had shorted the stock of the retail company GameStop. We saw the price of GameStop rise from about $20 at the beginning of the year to a peak of $347.5 on January 27. Yesterday, on February 4, it closed at $53.50. This is a brick-and-mortar company that sells video games and lost about $20 million last year. Today we will explore deeper issues surrounding the GameStop saga.
Factor-based models are often criticized for data mining. One way to address that charge is with “out-of-sample” testing over longer time frames. But that takes time. New research provides an alternative out-of-sample test – using emerging-market bonds.
When companies take positive ESG steps, they attract asset flows from fund managers, according to new research. But the price spikes from those flows may not result in outperformance for long-term investors.
The explosive rally in GameStop, pitting retail investors against hedge funds, has renewed calls to ban short selling. But new research shows how valuable short sellers are to the efficient functioning of markets.
It has been my tradition to informally rate the investment-related books I read in the past year. I have also included some novels and books of general interest. Here is my list of winners and losers.
Calls for fiscal stimulus measures to target infrastructure are growing. But new research shows that infrastructure investments have offered few benefits to investors.
The competition to find superior models is what advances our understanding not only of the markets but also about which factors to focus on when selecting the most appropriate investment vehicles and developing portfolios.
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 2021, it’s time for my final review of how the 2020 forecasts played out.
Bonds with the same S&P or Moody’s credit rating can vary greatly in terms of their risk and subsequent return. New research show that fixed income investors must also consider their credit spreads.
The performance of ESG funds has been unimpressive, according to new research, and the occasional outperformance is driven mainly by funds’ expenses, exposures to certain industries and factors.
Given that we have entered a recession, should investors cut their equity allocation? Or move to larger stocks with good financial health?
Given their small size, narrow focus and high degree of specialization, it is reasonable to expect that active sector funds generate alpha. New research shows this is the case – but with a lot of caveats.
Investors may choose a passive fund because they don’t believe they can distinguish between luck and skill among active fund managers. But new research shows that the issue of luck and skill plays an important role in passive fund returns too.
The financial health of state pension plans has worsened and advisors should avoid municipal bonds from certain issuers.