Poor index design can lead to high trading costs for investors. Thoughtful implementation can mitigate these costs by using weighting schemes that promote liquidity, employing turnover-control mechanisms, and applying staggered rebalancing.
Over the last 15 years, factor returns have not delivered on investors’ expectations. Are factors broken or far riskier than investors believe? Investors could dismiss the approach based on recent poor performance, but perhaps a better path would be to gain an understanding of three risks associated with factor investing. Doing so can help investors form more realistic return expectations.
Rob Arnott explains why Research Affiliates expects US equities to return only 1% above inflation over the next decade—but emerging markets offer more promising long-term returns.
February 5, 2019
CEO transitions are a great time to focus on refining the enduring formula of a firm’s success. At Research Affiliates that formula has three equally important elements: mission, culture, and team. The result are win-win-win outcomes—that is, a win for our end investors, a win for our distribution partners, and a win for ourselves.
RA Conversations
Cam Harvey looks at the yield curve today through the lens of his 1986 pioneering work on yield-curve inversions and their foreshadowing of economic downturns.
Further Reading
Where Is the Global Economy Going?
Hear Chris Brightman, Research Affiliates’ CIO, discuss his 10-year outlook for real equity returns. While he foresees the price of the S&P higher than where it is today, he expects US equity returns to be in the low single digits.
January 9, 2019
The business case for diversity is compelling, but the investment case for diversity is less clear-cut. We suggest, therefore, that investors who seek to promote diversity and its business benefits combine diversity with known drivers of excess returns.
Further Reading
Unlocking the Performance Potential in ESG Investing
We believe a solid understanding of the specific underlying return drivers of ARP strategies can improve investors’ odds of maximizing the long-run investment opportunity of ARP investing.
Further Reading
Alternative Risk Premia: Valuable Benefits for Traditional Portfolios
Machine learning provides the investment industry with a new set of tools. However, investors need to be cautious. Machine learning is being hyped and sometimes misapplied.
Feifei Li discusses RAFI Multi-Factor, a strategy that offers diversified exposures to robust equity factors.
June 12, 2018
Vitali Kalesnik discusses factor investing and how the ETF landscape has changed the way we talk about markets, value, and growth.
October 18, 2018
The biggest failure in investment management—the gap between the returns realized by the investor and the returns earned by the strategy or fund the investor owns—typically remains in the shadows with the glare of the spotlights focused on alpha.
“Is China a bargain now?” Rob explains why China is “getting there,” and expands his commentary to include US and emerging-market stocks, and a potential US recession.
October 18, 2018
Listen to Chris explain why he is worried about slowing US economic momentum as a result of fading fiscal stimulus. Chris believes emerging market equities remain a good bargain for investors.
October 11, 2018
Traditional index funds match market performance and have negligible trading costs with low tracking error—or do they? Not actually—they routinely buy after high price appreciation and sell after high price depreciation.
Bloomberg TV, August 17, 2018
Bloomberg TV, August 17, 2018
The relentless rise in the US stock market since its low in 2009 has been dramatic. US stock market valuations now exceed all historical valuation levels, except for those hit at the peak of the dot-com craze. This raises an obvious question for investors: Today, in early 2018, and has been the case over the last year, is the US stock market in another bubble? Yes. The more important question then becomes: How should investors react?
Beware the consequences of assuming that elevated CAPE ratios are here to stay, but if they are the "new normal", low future returns are likely to be the "new normal" as well.
Recognizing that the management of taxable portfolios has advanced in the past 25 years, the authors of the present paper update a seminal 1993 study in which Robert H. Jeffrey and Robert D. Arnott introduced the concept of a normally negative “tax alpha” and formulated tactics to reduce its detrimental impact on investment results.
All of the well-established factors to which investors gain exposure in low-cost smart beta funds are expected to deliver a premium in the long run, but none is guaranteed to outperform at all times. Seeking diversification, many investors have turned to strategies that exploit multiple factors. Published in the Journal of Index Investing.
Many investment organizations benchmark their funds’ performance against the classic 60/40 mix of domestic stocks and bonds, but this posture limits their ability to earn superior risk-adjusted returns. The authors argue that investors can fully realize the well-established benefits of asset-class diversification only if they are seriously willing to revisit their policy portfolios, investment guidelines, and benchmarks.
Winner of the 2018 Bernstein Fabozzi/Jacobs Levy Award for Best Article
Valuation, always an effective tool for long-term investors, can also be useful for assessing short-term market prospects. The authors demonstrate that conditioning CAPE on current inflation and real yields substantially improves its accuracy in forecasting returns for periods from one month to one year.
Published in the Journal of Portfolio Management by Rob Arnott, Omid Shakernia, Jonathan Treussard, and Michael Aked.
Winner of the 2016 Graham & Dodd Scroll Award Of Excellence Paper
Not every factor profits investors when implemented through a passive strategy. Size and quality show weak robustness, and liquidity-demanding factors, such as illiquidity and momentum, are associated with high trading costs.
Published in the Financial Analysts Journal by Jason Hsu, Vitali Kalesnik, Noah Beck, and Helge Kostka.
Winner of the 2015 William F. Sharpe Award for ETF/Indexing Paper of the Year
Investors might apply advanced techniques of quantitative analysis to discriminate between genuine premium-bearing factors and the spurious products of data-mining—but here’s a three-step heuristic.
Published in the Journal of Index Investing by Jason Hsu, Vitali Kalesnik, and Vivek Viswanathan.
Winner of the 2012 William F. Sharpe Indexing Achievement Award for Paper of the Year
Long-term simulations in U.S., global developed, and emerging markets confirm that low-volatility strategies can potentially access risk-diversifying sources of excess return. However, portfolio construction methods should be sensitive to investibility and valuations.
Published in the Journal of Portfolio Management by Jason Hsu, Tzee Chow, Feifei Li, and Li-Lan Kuo.
Winner of the 2012 William F. Sharpe Indexing Achievement Award for Paper of the Year
Value stocks typically enjoy higher dividends than growth stocks. Growth stocks, on the other hand, typically enjoy faster dividend growth. What most investors miss is that a portfolio of value stocks generates faster growth in dividends than a portfolio of growth stocks.
Published in the Journal of Portfolio Management by Rob Arnott and Denis Chaves.
Navigate long-term forecasts for over 130 assets and model portfolios.
Explore expected returns and valuations for smart beta and factor strategies.
RAFI strategies aim to generate excess returns versus the market benchmark through a systematic, contrarian rebalancing approach.
All Asset strategies are global tactical asset allocation (GTAA) solutions that aim to deliver real returns, diversification, and inflation protection via tactical long-only exposures.
RAE systematic active equity strategies seek to generate superior risk-adjusted returns.
Systematic Alternative Risk Premia
The Systematic Alternative Risk Premia strategy aims to deliver uncorrelated absolute returns through leveraged long–short exposures to liquid derivatives contracts.
November 30, 2018
January 31, 2018
Diversification Strikes Again: Evidence from Global Equity Factors
September 15, 2017
The Natural Rate of Interest and Bond Returns
August 9, 2017
Fortune: CAPE Fear: The Bulls Are Wrong. Shiller's Measure Is the Real Deal
February 15, 2019
Barron's: Why Momentum Stocks Have Lost Their Momentum
February 15, 2019
Institutional Investor: Rob Arnott: Avoid These Blunders in Factor Investing
February 14, 2019
Fortune: Stock Buybacks Are Not the Enemy
February 14, 2019
Financial Times: Value's comeback set to place a premium on stockpicking art
February 13, 2019
Forbes: 3 Charts That Scream 'Don't Buy Stocks'
February 13, 2019
Barron's: Contrarians Argue That Foreign Stocks Are Attractive Now
February 4, 2019
Barron's: The Fed Fuels a Dizzy Ride
February 4, 2019
Mauldin Economics: Should We Then Expect (From Investing)?
February 1, 2019
Market Watch: Stocks are overheated even with interest rates so low
January 28, 2019
Risk.net: Data mining, machine learning and problems with autocalls
January 19, 2019
The New York Times: In This Market, It May Be Time to Play Defense
January 11, 2019
Barron's: Rising Rates Are Good for Income Investors, Though Not Entirely
November 14, 2018
Financial Times: Questions arise of what happens in event of market slide
November 11, 2018
Financial Times: Smart beta inflows slow as performance chasers lose patience
November 4, 2018
ThinkAdvisor: How to Help Clients Understand the Importance of Rebalancing: Research Affiliates
August 9, 2018
Portfolio Rebalancing? Clients Would Literally Rather Be In Traffic
August 8, 2018
The Washington Post - Apple makes history by hitting the $1 trillion cap. How high could it go?
August 3, 2018
August 1, 2018
August 1, 2018
Bloomberg Opinion - How to Build a Better Index Fund
July 31, 2018
The Big Picture: MIB: Rob Arnott of Research Affiliates
July 28, 2018
U.S. News & World Report - Do's and Don'ts of Tax-Efficient Investing
July 27, 2018
Institutional Investor: Research Affiliates, Don't Fear Emerging Markets. Buy the Dip!
June 28, 2018
Bloomberg: Pimco Adviser Re-Ups Its 'Trade of a Decade' in Emerging Markets
June 28, 2018
June 28, 2018
Financial Advisor: Arnott, Taxes Take Biggest Bite Out Of Investment Returns
June 18, 2018
WSJ: Acclaimed Fund Manager's Latest Target: Hidden Costs of Indexing
June 11, 2018
Think Advisor: Advisors, Don't Waste Your Time on Manager Selection: Research Affiliates
June 5, 2018
WSJ: How Corporate America Tries to Forget Its Mistakes
June 8, 2018
Corporate Governance Expert Dr. Alex Edmans Becomes an Advisor to Research Affiliates
June 8, 2018
Barron's: Rob Arnott on Beating Stock Indexes
June 4, 2018
Financial Times: This is a tech bubble, when's the crash?
May 27, 2018
Financial Times: Don't bet against bubbles, look for 'anti-bubbles'
May 26, 2018
Financial Times: Smart beta 'godfather' taps into demand for ESG investments
May 13, 2018
New York Times: The Falling Dollar Means Investors Should Look Abroad – Carefully
May 13, 2018
Barron's: Research Affiliates Bets ESG and Smart Beta Are Two Great Tastes That Go Great Together
May 12, 2018
Bloomberg News: Today's Tech Winners Are Likely to Be Tomorrow's Losers, Arnott Says
April 24, 2018
April 20, 2018
Research Affiliates Launches New RAFI ESG Strategy
April 12, 2018