Research Affiliates

2002—2022

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Rising Risk of Stagflation
Trillions of dollars of deficit spending financed by money creation constrains the Fed’s freedom to raise interest rates enough to tame inflation. The jittery capital markets are reflecting this reality. How can investors reposition their portfolios to protect themselves?

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

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

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Featured Insights

RAFI Performance in a Changing Market Landscape

Rob Arnott, Chair, and Que Nguyen, Head of Product Management, discuss how the RAFI strategy has performed through the first quarter of 2022 and how they anticipate changing market conditions to impact future RAFI performance. 

Cam Harvey: Which Yield Curve Inversion Matters?

Recession fears were recently stoked after a brief inversion of the US 10Y/2Y curve. Cam Harvey, RA partner and senior advisor, responsible for the pioneering research on the predictive ability of yield-curve inversions, cautions the relevant inversion is the US 10Y/3M curve. We are not seeing that yet. Bottomline? No code red for recession. Cam explained his research and its implications to Jim Masturzo, CIO of Multi-Asset Strategies, in this evergreen RA Conversation recorded a few years ago.

Cryptocurrencies: The Power of Memes
Cryptocurrency has morphed into a permanently speculative investment vehicle, for which disruption lives forever in the future.
ESG Is a Preference, Not a Strategy
We believe the term ESG strategy is a mischaracterization. The underlying investment process drives the return of the chosen investment strategy, while the ESG preferences reflected in the securities selected for the portfolio do not. We make this distinction not to disparage ESG investing, because we actually view this trait as a benefit and value the ability to align our portfolios’ composition with our beliefs without a meaningful impact on performance.
Inflation Is Here! What Now?
Inflation is the current headline concern of consumers and investors alike. Chris Brightman, Research Affiliates’ CEO and CIO, offers his view on the risks associated with rapidly rising inflation and how investors can best position themselves to ride out those risks.
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?

2021 ESG Survey Report

What ESG theme is most important to clients? What size allocation do adopters make to ESG investing in their managed portfolios? Do adopters prefer active or passive ESG investing strategies? How important is ESG investing to the value proposition advisors and wealth managers offer their clients? Get the answers to these questions and more in the 2021 Research Affiliates ESG Survey Report of financial advisors and wealth managers. 

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.

Insights From Senior Leadership

Revisiting Tesla’s Addition to the S&P 500: What’s the Cost, Before and After?
Tesla entered the S&P 500 Index on December 21, 2020. Over the next six months, AIV, the stock deleted to make way for TSLA, outperformed TSLA by a stupendous margin—exactly as we expected, based on our research. Index rebalances impose a variety of costs on investors. Smarter index design could go far to mitigate these costs.
The Time Is Now: Climate Transition Investing for US Investors
Europe is a step ahead of the United States in climate-related regulation, but we expect a similar regulatory structure will be enacted soon in the United States. US investors have an opportunity now in planning how to align investment decision making with the provisions already outlined by EU regulators.
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.”

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.

Featured Journal Articles

Reports of Value's Death May Be Greatly Exaggerated
Winner of the 2021 Graham & Dodd Scroll Award

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 by Rob Arnott, Campbell Harvey, Vitali Kalesnik, and Juhani Linnainmaa.
Alice’s Adventures in Factorland: Three Blunders That Plague Factor Investing
Winner of the 2020 Bernstein Fabozzi/Jacobs Award for Outstanding Article

Factor investing has failed to live up to its many promises. Its success is compromised by three problems that are often underappreciated by investors. 

Published in the Journal of Portfolio Management by Rob Arnott, Vitali Kalesnik, Campbell Harvey, and Juhani Linnainmaa.
What Is Quality?
Winner of the 2019 Graham and Dodd Top Award

Unlike standard factors, such as value, momentum, and size, “quality” lacks a commonly accepted definition. Practitioners, however, are increasingly gravitating to this style factor. 

Published in the Financial Analysts Journal by Vitali Kalesnik, Jason Hsu, and Engin Kose.
King of the Mountain: The Shiller P/E and Macroeconomic Conditions
Winner of the 2018 Bernstein Fabozzi/Jacobs 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.
Will Your Factor Deliver? An Examination of Factor Robustness and Implementation Costs
Winner of the 2016 Graham & Dodd Scroll Award

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.
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 by Feifei Li, Tzee Chow, Alex Pickard, and Yadwinder Garg.

In The News

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April 26, 2022
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March 22, 2022
CNBC
March 11, 2022

RA Papers On SSRN

May 3, 2022
January 24, 2022
November 1, 2021
April 29, 2021
March 22, 2021
January 23, 2021
January 7, 2021
December 11, 2020
December 11, 2020
Bernstein Fabozzi/Jacobs Levy Award Winner
April 11, 2019
November 24, 2018