Now is the season for nowcasting as one decade turns into the next. Pundits and market prognosticators too often treat nowcasts as true market forecasts, which can be very dangerous for investors’ financial health. Our forecasts for the decade ahead rely on empirically driven quantitative models. Although our forecasts paint a relatively sober view of expected returns going forward, a few asset classes offer some bright spots on the horizon.
Value investing has underperformed growth investing for over 12 years with a -39.1% drawdown from peak to trough using the classic Fama–French definition of the value factor. The drawdown is explained by value becoming unusually cheap relative to growth with the valuation now in the 97th percentile of the historical distribution.
Register Now for Webinar
In this webinar we will decompose historical stock and bond returns into their constituent drivers; speak to our building-block framework for creating capital market expectations by forecasting each of these drivers individually; discuss the implications for a host of asset classes over the next decade; and provide actionable insights for investors.
The need for ESG ratings to help investors construct portfolios in line with their ESG preferences is acute. Unfortunately, both quality and consistency of ratings can hamper the process. We compare the ratings of two well-known ESG ratings providers to highlight why investors need to have a solid understanding of their provider’s methodology.
Jason Hsu and Vitali Kalesnik discuss which definitions of the quality factor are robust and have been shown to generate a return premium based on their Graham and Dodd award-winning article. Their findings suggest a link between the quality factor and ESG investing.
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.
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.
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.
April 11, 2019
November 24, 2018
What Is Quality? Graham and Dodd Award Winner
May 10, 2019
February 5, 2019
December 19, 2019
December 18, 2019
December 17, 2019
December 12, 2019
December 8, 2019
December 5, 2019
December 4, 2019
December 4, 2019
November 20, 2019
November 20, 2019
November 13, 2019
October 2, 2019
September 16, 2019
August 21, 2019
July 29, 2019
July 15, 2019
June 30, 2019
June 26, 2019
June 19, 2019
June 07, 2019
May 01, 2019
April 16, 2019
February 25, 2019