The smart beta exchange-traded product marketplace is crowded and extremely competitive. To gain attention, some rather hefty performance claims are being made. We examine live US mutual fund track records over the last 40 years to gain an intuition into how much outperformance is reasonable for the most superior smart beta strategy or active manager. We call this return “plausible outperformance.”
The evidence and intuition underlying a contrarian value investing discipline has proven merit in cycle after cycle across history. When value becomes cheap, it almost always and everywhere comes back as an outperforming investment strategy. If history is a guide, now is the time to increase allocations to value strategies.
2019 Investment Symposium
Chasing returns can be very costly. High valuations can go higher, but not indefinitely. At Research Affiliates’ recent London Symposium, Rob Arnott explains how the link between starting valuations and subsequent returns is powerful, and examines which investments look attractive today.
Because cognitive diversity is conducive to better decision making, firms that embrace it tend to produce better outcomes for their investors. Katrina Sherrerd discusses how improved outcomes are being increasingly linked to a sustainable and high-functioning culture.
Cam Harvey explains the link between the yield curve inversion and future stock returns as well as why value offers investors a potential hedge against downside risk after a yield curve inversion.
In a 45-minute webinar, Rob Arnott and Ari Polychronopoulos discuss the performance of RAFI and value in the context of the longest bull market for growth stocks in history.
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. Katrina Sherrerd's 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.
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
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.
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.
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
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, Tzee Chow, and Denis Chaves.
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.
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.
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.
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