Research Affiliates

Did I Miss the Value Turn?

The value rebound that started in September 2020 gave up nearly half its gains by mid-May 2021 as the recovery faltered with the onslaught of the highly contagious Delta variant. But vaccination has proven highly effective, and as the unvaccinated around the world become vaccinated, the prospect of a reinvigorated economy is good. Is now a second chance to rebalance into value stocks?

View long-term expected returns and volatilities for 130 core asset classes.

Which factors have the highest return prospects or lowest transaction costs?

Featured Insights

Predicting Equity Returns with Inflation

Recent conversations in the investment industry are dominated by predictions about the path of the inflation rate and its implications for capital markets. Rather than predicting what will happen to inflation in the future—a particularly arduous and humbling task—we ask a simple question: What can past inflation dynamics tell us about the equity market’s future returns? We find they can tell us a lot.

Value Has Rebounded. Now What?

Is the value rally over? Have value investors missed the turn? Rob Arnott discusses the current environment—including market concentration as it involves the FANMAG stocks and the notorious vulnerability of these top dog stocks to remain on top—and why we believe the potential for value’s outperformance relative to growth stocks remains compelling.

As Duration Dies, Equities Rise

We compare the current value of bonds versus stocks within the context of the equity risk premium. We couple this analysis with an evaluation of possible Fed policy direction. Our conclusion is that risk assets, such as US equities and corporate bonds, are poised to benefit as are gold and other commodities due to tumbling real yields and dollar weakening.

How COVID-19 Vaccines and Brexit Create the Trade of the 2020s

In late 2020, UK stocks, and notably UK value, reached very cheap levels relative to value stocks in other developed economies. The added tailwinds from a final Brexit deal and rapid rates of UK COVID vaccination should lead to a vigorous bounce back in UK stocks, in particular UK value stocks, making this sector of the market a “trade of the decade.”

Beware the Shocks in the Road

Massive growth in central bank balance sheets via quantitative easing, debt monetization, and firing of “big bazooka” stimulus packages brings renewed focus to potential shocks in the business cycle. An awareness of the macroeconomic “shocks” and their impact on asset prices should be incorporated in investors’ tactical asset-allocation decisions.

Bitcoin: Magic Internet Money

The sage advice to “know what you are investing in” is being dangerously overlooked by both novice and seasoned investors when it comes to bitcoin. A former bitcoin miner explains why the price of BTC is nearly certainly a bubble and likely manipulated. Investors should proceed with extreme caution.

Insights From Senior Leadership

New Research Insights

Learn more about the latest findings from the Research Affiliates' research team and how we are incorporating these insights into our strategies.

Surprise! Factor Betas Don’t Deliver Factor Alphas

By buying or overweighting characteristics-based factor exposure and selling or underweighting beta-based factor exposure, investors can position their portfolios to reap the rewards of factor investing while bearing less risk.

Tesla, the Largest-Cap Stock Ever to Enter S&P 500: A Buy Signal or a Bubble?

On December 21, 2020, Tesla will be the largest company ever to enter the S&P 500 Index. Tesla’s skyhigh valuation, which meets our real-time definition of a bubble, conforms to the observation that market-cap-weighted indices buy high and sell low—the antithesis of prudent investing.

Is Diversification Dead?

Over the last dozen years, investors holding the classic US 60/40 portfolio were substantially better off than their diversified peers, yet now is not the time to abandon diversification and diversifying asset classes. We believe it is imprudent to trust that escalation in valuations will continue unabated into the next decade and show that an equally weighted portfolio of 16 assets has relentlessly outperformed a 60/40 blend since 1975, supporting the theoretical arguments that underlie the benefits from diversification.

Featured Journal Papers

Reports of Value's Death May Be Greatly Exaggerated

Value investing has underperformed growth investing for the last 13.5 years. The drawdown is the longest and deepest since 1963 and is explained by value becoming unusually cheap relative to growth. As of June 30, 2020, the relative valuation of the HML value factor fell to the 100th percentile of the historical distribution. Published in the Financial Analysts Journal.

Published in the Financial Analysts Journal by Rob Arnott, Campbell Harvey, Vitali Kalesnik, and Juhani Linnainmaa.

Transaction Costs of Factor-Investing Strategies

Although hidden, the implicit market impact costs of factor investing may substantially erode a strategy’s expected excess returns. The rebalancing data of a suite of large and long-standing factor-investing indexes are used in this study to model these market impact costs. Published in the Financial Analysts Journal.

Published in the Financial Analysts Journal by Feifei Li, Tzee Chow, Alex Pickard, and Yadwinder Garg.

Winner of the 2020 Bernstein Fabozzi/Jacobs Award for Outstanding Article

Alice’s Adventures in Factorland: Three Blunders That Plague Factor Investing

Factor investing has failed to live up to its many promises. Its success is compromised by three problems that are often underappreciated by investors. Winner of the 2020 Bernstein Fabozzi/Jacobs Levy Award for Outstanding Article.

Published in the Journal of Portfolio Management by Rob Arnott, Vitali Kalesnik, Campbell Harvey, and Juhani Linnainmaa.

Is Your Alpha Big Enough to Cover Its Taxes? A Quarter-Century Retrospective

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.

Published in the Hournal of Portfolio Management by Rob Arnott, Vitali Kalesnik, and Trevor Schuesler.

Winner of the 2016 Graham & Dodd Scroll Award Of Excellence Paper

Will Your Factor Deliver? An Examination of Factor Robustness and Implementation Costs

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.