1. Perhaps the range of expectations is unreasonably narrow and skewed to the upside by “performance selling,” but that’s a story for another day.
2. This group includes the commonly known FANG stocks, along with Microsoft and Amazon.
3. From January 1, 2017, through May 31, 2017, the price per share of the common stock of Facebook rose by 31.7%, Apple by 33.0%, Netflix by 31.7%, Microsoft by 13.7%, Amazon by 32.6%, and Google (Alphabet Share Class C) by 25.0%.
4. This is entirely expected because, by design, RAFI strategies include stocks at their current economic scope. We cover this in more depth later in the article.
5. Since we first published the Fundamental Index concept, the FTSE RAFI US Index produced an annualized excess return of 0.8% over the S&P 500 Index (from November 28, 2005, to May 31, 2017).
6. All year-to-date results referenced in this article reflect the period from January 1, 2017, to May 31, 2017.
7. The Value Composite factor is long stocks with low price-to-fundamental ratios and short stocks with high price-to-fundamental ratios. Fundamentals used to create the four measures are book value, five-year average sales, five-year average earnings, and five-year average dividends. The factor is created within large-cap stocks.
8. Bianco (2017) writes that: “There is not a single clean metric to show if the stock market’s returns are concentrated in a few stocks. That is why we use several charts…to show the S&P 500’s gains this year are the most concentrated since the tech bubble of 1995 to 2000.”
9. We surmise these outliers tend to be stocks of sustainable growth companies, which invest judiciously and resist the temptation of empire building or aggressively expanding their businesses.
10. The term “tenbagger” was coined by Peter Lynch in One Up on Wall Street (2000) and refers to an investment that appreciates to 10 times its initial purchase price.
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———. 2016b. “Timing ‘Smart Beta’ Strategies? Of Course! Buy Low, Sell High!” Research Affiliates (September).
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