Search found 112 matches
- Sat Oct 25, 2014 9:59 am
- Forum: Investing - Theory, News & General
- Topic: new interesting piece by Asness on hedge funds
- Replies: 26
- Views: 3821
Re: new interesting piece by Asness on hedge funds
Larry, there are only two problems: In the past DFA (or the like) could overcompensate their fees with securities lending or de facto market making because there was less competition, in their respective niches. This is not the case anymore to this degree, with more players fishing in the same pond. I would surely not count on that DFA, AQR or other companies can "add value" as much as in the backtest or past live performance. In the past factor premias have been high, again because of less interest/popularity. Now everyone and their brother has read Ilmanen, Lussier, Smart Beta marketing material & Co. Especially the part about no real risk stories for certain factors or when there seems to be at least a good behavioural chun...
- Sat Oct 25, 2014 9:17 am
- Forum: Investing - Theory, News & General
- Topic: new interesting piece by Asness on hedge funds
- Replies: 26
- Views: 3821
Re: new interesting piece by Asness on hedge funds
I agree that Asness has some good points, but his own (AQR) products are still way too expensive. For their equity funds only temporary fee waivers rescue the case for the next six months and the style premia fund's net fee goes through the roof already. Think of Schwab's RAFI ETFs instead with regular ERs of 0.32 (US Large + Small, Int. Large) and 0.48 (Int. Small, EM). 0.5 is what I would consider the upper limit for anything long only, including commodities. 0.5 only for illiquid niches, not for everything. Double that for a long/short fund and we are at 0.9-1.0 ER MAX.
- Sat Oct 25, 2014 8:57 am
- Forum: Investing - Theory, News & General
- Topic: How to think about expected returns--continuing discussion
- Replies: 105
- Views: 12992
Re: How to think about expected returns--continuing discussi
Let's not forget that we are talking about long term to very long term forecasts here. 7/10, 20, 30+ years. In contrast to those over a few months or a few years only, which are basically useless. Even LT forecasts have a high uncertanity, but at least they are one of the better tools/ideas around, when linked to fundamentals like yield, growth, valuation, ...
- Fri Oct 24, 2014 12:47 pm
- Forum: Investing - Theory, News & General
- Topic: Prediction: Rise of Concentrated Funds
- Replies: 20
- Views: 2610
Re: Prediction: Rise of Concentrated Funds
I think OP has already given a good reason for his expectation: less concentrated funds are basically overpriced factor beta portfolios ("closet indexers"). Be it risk factors or mispricing factors. And this kind of portfolio you can buy for cheap as ETF or fund nowadays.
- Wed Oct 22, 2014 8:10 am
- Forum: Investing - Theory, News & General
- Topic: Regressing Term and Credit Risk for Fixed Income
- Replies: 3
- Views: 574
Re: Regressing Term and Credit Risk for Fixed Income
The PV site calculates the factors using Vanguard LT Gov/Corp bond funds, as I understand it. These funds have inception dates around 2009, that explains the available start date.
For annual returns you can copy the data from Simba's Excel spreadsheet or from http://www.portfoliovisualizer.com/hist ... ss-returns (same thing). DFA's matrix book or the Ibbotson SBBI book have annual data going back even longer - mid 1920s I think. This will only give you meaningful regression results for VERY old funds or index data though. Otherwise there are just not enough data points for reliable results.
For annual returns you can copy the data from Simba's Excel spreadsheet or from http://www.portfoliovisualizer.com/hist ... ss-returns (same thing). DFA's matrix book or the Ibbotson SBBI book have annual data going back even longer - mid 1920s I think. This will only give you meaningful regression results for VERY old funds or index data though. Otherwise there are just not enough data points for reliable results.
- Tue Oct 21, 2014 6:33 am
- Forum: Investing - Theory, News & General
- Topic: Valuations and the AA decision
- Replies: 8
- Views: 1292
Re: Valuations and the AA decision
Have a look at http://www.alphaarchitect.com/blog/2014 ... p-markets/staythecourse wrote:I was hoping you could put some of those returns in context to what an investor's other options might have been at those same time points in fixed income.
- Sat Oct 18, 2014 12:45 pm
- Forum: Investing - Theory, News & General
- Topic: Thoughts on Paul Merriman's Portfolio
- Replies: 71
- Views: 35075
Re: Thoughts on Paul Merriman's Portfolio
This kind of micromanagement has been the reason for DFA's core and vector funds.
- Sat Oct 11, 2014 2:59 pm
- Forum: Investing - Theory, News & General
- Topic: Global vs S&P 500 or Total Stock Market Returns
- Replies: 5
- Views: 1357
Re: Global vs S&P 500 or Total Stock Market Returns
Yes, I have noticed this too. The 404 already came up some weeks ago, but then the link started working again. Anyway, apparently Google has a cached version: https://docs.google.com/viewer?url=http ... 201202.pdf
Click on File > Download to get the PDF.
Also don't overlook the download option for 1970-2014 at MSCI, there is more than the past 10 years available. Here are the instructions: https://www.msci.com/resources/pdfs/Ind ... ebsite.pdf
Click on File > Download to get the PDF.
Also don't overlook the download option for 1970-2014 at MSCI, there is more than the past 10 years available. Here are the instructions: https://www.msci.com/resources/pdfs/Ind ... ebsite.pdf
- Sat Oct 11, 2014 2:46 pm
- Forum: Investing - Theory, News & General
- Topic: Global vs S&P 500 or Total Stock Market Returns
- Replies: 5
- Views: 1357
Re: Global vs S&P 500 or Total Stock Market Returns
You can go to http://www.msci.com/products/indexes/co ... mance.html and download country indexes starting in 1970 in Excel format. Just click on a row and a download menu will pop up. There is also a DFA PDF summarizing the 1900-2010 Dimson/Marsh/Stanton (DMS) data, but the server says error (404) at the moment: http://www.texpers.org/documents/confer ... 201202.pdf
- Thu Oct 09, 2014 11:21 am
- Forum: Investing - Theory, News & General
- Topic: Morningstar: Doing the Rope-a-Dope
- Replies: 1
- Views: 679
Re: Morningstar: Doing the Rope-a-Dope
The printed article is based on two out of three of Rekenthaler's online posts. Here is the third one:
Active Versus Passive Is the Wrong Question
The cost is what counts.
http://news.morningstar.com/articlenet/ ... ?id=662733
Active Versus Passive Is the Wrong Question
The cost is what counts.
http://news.morningstar.com/articlenet/ ... ?id=662733
- Wed Oct 08, 2014 7:17 pm
- Forum: Investing - Theory, News & General
- Topic: What evidence would prove the Boglehead mentality wrong?
- Replies: 212
- Views: 27667
Re: What evidence would prove the Boglehead mentality wrong?
Cullen Roche (the blogger) has a point that lots of people going around dissing "active management" do not invest in in a global market cap weighted portfolio and lever it up or down (CAPM like) - what he would call "passive". I think this is a reasonable argument. Most BHs, Jack Bogle himself or Larry or Rick or ... still pick asset classes and US/non-US into a portfolio, i.e. are active "(self-)managers" for their money at a portfolio level. BUT: there is a huge continuum of "active". Let's take someone choosing a fixed AA of systematic assets/factors once (still alter it when your life changes), with only a very longterm forecast that stocks are likely to return more than bonds or such. Maybe act i...
- Wed Oct 08, 2014 2:43 pm
- Forum: Investing - Theory, News & General
- Topic: A close look at factors in real world,
- Replies: 18
- Views: 3821
Re: A close look at factors in real world,
Here is another link, with the finalized layout: http://faculty.chicagobooth.edu/tobias.moskowitz/research/2242_Final_TM_RI_oneComment.pdf Is "value" here defined as B/P? Haven't we established that B/P is the only metric for which there is no large-cap value premium; other value metrics do exhibit a large-cap value premium? Yes, P/B. Although they have some other metrics in the appendix, page 22 in the PDF above. Ret(-1,-60) means the relative losers of the past 5 years ("LT reversal"). There is still a good decline of "value" from SV to LV. When looking at the diagrams, the long-only / composite metric / size 5 portfolio seems to level around 2-3%/year 1950-2011. Not bad after 1990 either, compare it to the b...
- Wed Oct 08, 2014 9:47 am
- Forum: Investing - Theory, News & General
- Topic: AA Testing Tools
- Replies: 8
- Views: 1089
Re: AA Testing Tools
You will only find the best portfolio in hindsight, true. Still there are some known differences between portfolios, it's not just lottery. Some asset allocations (AA) are better suited when inflation and your future purchasing power is the major concern, others when it is deflation or you have to pay fixed nominal duties in the future or something. Some AA try to cut drawdowns (that may never recover, i.e. "shallow risk" turning into "deep risk") but you have to give up hopes to do very well or you may even end in underperformance, as tradeoff. Some AA will roughly track what everybody else is doing (market), while others will likely have a high so called tracking error to your peers/the market. This may or may not be a...
- Wed Oct 08, 2014 4:35 am
- Forum: Investing - Theory, News & General
- Topic: Monthly or annual returns for csrp indices
- Replies: 9
- Views: 1243
Re: Monthly or annual returns for csrp indices
You can got to http://mba.tuck.dartmouth.edu/pages/fac ... brary.html for some portfolio data.
- Mon Oct 06, 2014 4:09 pm
- Forum: Investing - Theory, News & General
- Topic: "Stock Exposure: Grow or Shrink Throughout Retirement?"
- Replies: 35
- Views: 4644
Re: "Stock Exposure: Grow or Shrink Throughout Retirement?"
Even with moving pictures now! http://www.multifactorworld.com/Lists/P ... spx?ID=151
- Mon Oct 06, 2014 3:44 am
- Forum: Investing - Theory, News & General
- Topic: Four-Factor-Only Portfolio?
- Replies: 30
- Views: 5994
Re: Four-Factor-Only Portfolio?
Robert, can you compare some measure of downside tail risk for the three options? Worst year, worst three years, maximum drawdown or something along these lines? Would be interesting to see how the minimum volatility portfolio fits in. Only if not much work is needed, of course. Another point I wonder about is what happens with longer duration than T-Bills, because of the supposed term/duration exposure of minimum volatility.Robert T wrote:
- 1989-2013 - annualized return/standard deviation
10.2%/14.9 = MSCI Minimum volatility
10.3%/14.7 = 80% to the 4x25% portfolio above: 20% T-bills
12.1%/14.4 = 45% RAFI Pure Small Value:25% MSCI Momentum:30% T-bills
- Sat Oct 04, 2014 10:39 am
- Forum: Investing - Theory, News & General
- Topic: Best book on Finance I ever read, Ben Graham's Intelligent I
- Replies: 35
- Views: 9524
Re: Best book on Finance I ever read, Ben Graham's Intellige
Interesting, because we now have Sharpe's definition of passive and Graham's. The former is based on mcap market portfolios <> deviation from that. Ultimately the tradeable and nontradeable global capital market. Because every dollar deviating - for good or bad reasons, more/less risk or a free lunch - needs an opposing counterpart, or returns will be affected. Graham is more about behaviour, expectations like avoiding mistakes, no stress, peace of mind, ... whether you believe in EMH or others making mistakes and thus your value portfolio doing better or something else.
- Fri Oct 03, 2014 1:45 pm
- Forum: Investing - Theory, News & General
- Topic: Optimum # of Funds in a Portfolio ?
- Replies: 17
- Views: 2402
Re: Optimum # of Funds in a Portfolio ?
I don't think the way you have set up the question is that useful. It does not separate between an investment strategy and available fund options. I don't think people strive to increase their number of funds. Your first checkbox for example, 1 fund. You call it "TSM". Okay, but what about 1 because you own DFA Vector or RAFI 1000 (Slice & Dice)? Today you can buy S&D with a single fund too and sleep well at night and enjoy majesty of simplicity. On the other hand, before TSM funds came around you had to buy at least 2 funds just for market coverage (500 + Extended).
- Fri Oct 03, 2014 6:25 am
- Forum: Investing - Theory, News & General
- Topic: Cramer's sane moment on Gross' exit
- Replies: 24
- Views: 4401
Re: Cramer's sane moment on Gross' exit
5-10 stocks is a good idea for active stock pickers. I am talking about people who really want to bet on company specific influences. If the bets work out is the big question, obviously. :D Otherwise you will end up more and more with a portfolio of systematic factors, bascially late Graham's "value indexing" or momentum indexing or whatever. Just regress funds like Sequioa (U.S. midcap value + quality/profitability) or Templeton Growth (developed markets value) to see it. Stockpickers? Yes. Diversified? Yes. Excess returns in the longer run? No. Such a portfolio may still be a good idea however, depending on the costs. You don't have to pay fund fees to Bridgeway, RAFI, DFA and the like, although you will get a higher tracking er...
- Fri Oct 03, 2014 5:04 am
- Forum: Investing - Theory, News & General
- Topic: Active Manager Marketing Quote of the Day
- Replies: 32
- Views: 5806
Re: Active Manager Marketing Quote of the Day
I think "telltale" is just a fancy name for excess returns of asset 1 over asset 2. HDPMX over VEXMX. If the linie is going down it means HDPMX' returns are lower. Parallel lines = they return the same. Upward sloping line = HDPMX has better returns.
- Thu Oct 02, 2014 7:19 am
- Forum: Investing - Theory, News & General
- Topic: Minimum volatility - simply factor exposure
- Replies: 45
- Views: 8702
Re: Minimum volatility - simply factor exposure
There are two easy to read articles by Samuel Lee about it. The first one explains the idea of factors as drivers of returns in general (with inflation, growth, liquidity as examples). The second explains the commonly used micro/fundamental models for stocks and what the math/numbers mean:whitefish wrote:Can you define the word "load" and how you arrived at the numerical values in your post?
http://news.morningstar.com/articlenet/ ... ?id=636550
http://news.morningstar.com/articlenet/ ... ?id=636847 (3 pages)
- Wed Oct 01, 2014 7:17 am
- Forum: Investing - Theory, News & General
- Topic: Stock Dividend Yields & Share Buybacks — A Surprise
- Replies: 76
- Views: 12545
Re: Stock Dividend Yields & Share Buybacks — A Surprise
2) I don't happen to be a member of the cult of dividend stocks, but it's curious to me that there seems to be a) a cult of dividend stocks, b) a cheering section for buybacks, yet I haven't run across people advocating tilts toward "high-buyback stocks," adding them as a portfolio slice, or anything of the sort. We are talking about a carry strategy here, but in stocks this usually ends in value. Unless everyone is stretching for yield and driving up the prices, which is what we have seen for the past years. So there is not much news for peope already using a valuation metric and a secondary profitability/quality one (be it factor based or because of Graham & Doddsville), aside from buybacks fixing the dividend yield value m...
- Tue Sep 30, 2014 9:18 am
- Forum: Investing - Theory, News & General
- Topic: Minimum volatility - simply factor exposure
- Replies: 45
- Views: 8702
Re: Minimum volatility - simply factor exposure
Why has Vanguard 1/3 or so of AuM in active funds? Don't think this thread says it's a bad idea. If it is a good one is another question, let alone if it is a superior or unique one.
- Tue Sep 30, 2014 7:26 am
- Forum: Investing - Theory, News & General
- Topic: [Poll] Eurozone Investors and Home Bias
- Replies: 5
- Views: 890
Re: [Poll] Eurozone Investors and Home Bias
Market cap in million USD:asset_chaos wrote: So I think the Eurozone is about 10% of global stock market capitalization.
MSCI EMU IMI*: 4,480,654.23
MSCI ACWI+FM IMI**: 44,078,582.78
Checks out. That said, regarding currencies it's more about the (unhegded) internal cashflows of the underlying companies, not the place of a their legal headquarter.
* http://www.msci.com/resources/factsheet ... -gross.pdf
** http://www.msci.com/resources/factsheet ... fm-imi.pdf
- Tue Sep 30, 2014 4:34 am
- Forum: Investing - Theory, News & General
- Topic: Minimum volatility - simply factor exposure
- Replies: 45
- Views: 8702
Re: Minimum volatility - simply factor exposure
[...]His argument is that risk is and is perceived to be relative. Happiness comes from being better off than your friends/neighbors etc. not from reaching some absolute level of accomplishment. In investing, this means that "risky" = failure to beat to the market. To avoid this risk, one must pick investments with higher potential payoffs--i.e. high volatility stocks. In this framework, risk and behavioral explanations mesh into one. His approach may or may not be correct (I'm not sure, personally), but it's interesting and his book, "The Missing Risk Premium" is worth a read for those who find such material interesting. :happy This is a good argument, similar to the one mentioned in Rekenthaler's recent posting at M*:...
- Mon Sep 29, 2014 4:54 pm
- Forum: Investing - Theory, News & General
- Topic: Does market cap weighted indexing logically follow from EMH?
- Replies: 17
- Views: 2521
Re: Does market cap weighted indexing logically follow from
Just put something like joint hypothesis problem efficient market hypothesis into Google. "EMH implies CAPM" is not true. The CAPM is only one of many asset pricing models that have been proposed over the decades. Also note that there are several variants/extensions of the CAPM itself. A good read about the CAPM and it's idea of priced risk factors ("bad returns in bad times") is an interview with Sharpe from 1998: Revisiting The Capital Asset Pricing Model -> http://web.stanford.edu/~wfsharpe/art/djam/djam.htmlee1026 wrote:I haven't heard this one before, source?
- Mon Sep 29, 2014 8:13 am
- Forum: Investing - Theory, News & General
- Topic: Minimum volatility - simply factor exposure
- Replies: 45
- Views: 8702
Re: Minimum volatility - simply factor exposure
But low vol is advertised by Falkenstein and others as unique and free lunch (others make mistakes) trading strategy. It then showing time varying factor exposures that in the longer run end in a mix of lower market beta, value, duration, quality, ... with no significiant alpha makes it look not so unique and more unreliable to predict. And it does not even seem to really reduce crash risk, just volatility. I don't buy the buzz about low vol so far.
- Mon Sep 29, 2014 5:08 am
- Forum: Investing - Theory, News & General
- Topic: Does market cap weighted indexing logically follow from EMH?
- Replies: 17
- Views: 2521
Re: Does market cap weighted indexing logically follow from
Lee, there is a difference between the market portfolio beeing (multi factor) efficient - or not - and beeing CAPM efficient - or not. CAPM is just a very simpe model with strong assumptions. I agree however that only a small part of market participants can "tilt" in the same direction (e.g. SV + MOM/QUAL). If Arnott, Asness, Ilmanen, Lussier, Bridgeway, DFA, Larry, Graham & Doddsville, LovVol guys and the like find enough followers, their returns will dimish or may even turn into long term underperformance. Doesn't really matter then if said investors believe the market is multi factor efficient and they are taking more (equity) risk for higher returns. Or if they think it's inefficient (to a degree) and others make mistakes/...
- Mon Sep 29, 2014 4:49 am
- Forum: Investing - Theory, News & General
- Topic: Minimum volatility - simply factor exposure
- Replies: 45
- Views: 8702
Re: Minimum volatility - simply factor exposure
I like low. vol. because it basically offers the market return with lower risk. Lower volatility yes - if there are lower drawdowns is a different question as I understand? see http://ibd.morningstar.com/article/article.asp?id=599843&CN=brf295 for example: One is that the lunch might not in fact be free. It may have a price that is hidden. Such is the argument of James Xiong, Tom Idzorek, and Roget Ibbotson (two Morningstar researchers and the founder of Morningstar's Ibbotson business group) in "Volatility vs. Tail Risk: Which One is Compensated in Equity Funds?" The trio examined 30 years' worth of mutual fund performance and determined that yes, lower volatility does not lead to decreased performance. For U.S. equity funds...
- Sun Sep 28, 2014 7:57 pm
- Forum: Investing - Theory, News & General
- Topic: Minimum volatility - simply factor exposure
- Replies: 45
- Views: 8702
Re: Minimum volatility - simply factor exposure
Not a problem, quite the opposite. For decision making this is good news, because it keeps things simpler. Many mathematical portfolio optimizations seem to end up in the well known factor exposures, not just LowVol. There was a thread about this in 2013: http://www.bogleheads.org/forum/viewtopic.php?p=1881632
The potential problem I see is that in the future such optimizations may end in different exposures, because they are just a by-product. You don't know what you get. Seems (too) uncertain to me, as there are products availabe that more or less directly target factors, like RAFI.
The potential problem I see is that in the future such optimizations may end in different exposures, because they are just a by-product. You don't know what you get. Seems (too) uncertain to me, as there are products availabe that more or less directly target factors, like RAFI.
- Sun Sep 28, 2014 6:18 pm
- Forum: Investing - Theory, News & General
- Topic: 'Play Money' - why 5%?
- Replies: 42
- Views: 3792
Re: 'Play Money' - why 5%?
I have a question about the term "gambling" itself, as it is used in this thread: Are we talking about the highly speculative idea of going to Graham & Doddsville here? Or about max levered daytrading of commodities for 5 hours a day? I mean, what a BH calls gambling is probably not what non-BHs call gambling.happyisland wrote:[...] to burn up to 5% of your holdings.
- Sun Sep 28, 2014 5:30 am
- Forum: Investing - Theory, News & General
- Topic: Minimum volatility - simply factor exposure
- Replies: 45
- Views: 8702
Re: Minimum volatility - simply factor exposure
I am wondering about quality/profitability and the F/F term/duration risk factor. In at least one study pushed out by Hsu (RAFI) and his co-authors there seems to be a duration exposure for LovVol. They did not include PMU or QMJ however, if I remember correctly. You also have the duration factor exposure of utilities for exmple, which seem to be a traditionally "higher quality" sector. What happens if you regress one on the other, include both or something? Thoughts?
- Sat Sep 27, 2014 7:04 pm
- Forum: Investing - Theory, News & General
- Topic: Paul Merriman: DFA Better Than Vanguard
- Replies: 13
- Views: 4342
Re: Paul Merriman: DFA Better Than Vanguard
I have a semi-related question. Not about DFA's returns, but about it's transparency for individual investors. The DFA website does not have much details about what they really do, e.g. what they track (HML?) or want to deliever, the momentum screen and hold ranges, not buying extreme SG stocks at all(?), sampling and so on. While the current factsheets at least mention some of these things, for years you would only have known this via "advior leaks". Sometimes there are DFA research PDFs from investment conferences or some academic studies DFA funds (e.g. the one study about the original CRSP 9-10 fund). But all this is not offical let alone legaly binding. What do clients of a typical advisor get to know or CAN get to know if th...
- Sat Sep 27, 2014 2:20 pm
- Forum: Investing - Theory, News & General
- Topic: Emerging Markets Index
- Replies: 20
- Views: 2109
Re: Emerging Markets Index
True, but your data provider has to get the currency conversion right. For example, in the following chart CWO.TO is what Yahoo Finance delivers. CWO.USD is what it looks like after applying the CAD>USD rate (QUANDL/CADUSD). Start date is 2012-06-04, daily data, adjusted close prices:#Cruncher wrote:But even if the ETF is denominated in CAD rather than USD, this wouldn't cause its returns to differ.
- Fri Sep 26, 2014 5:58 pm
- Forum: Investing - Theory, News & General
- Topic: Cliff Notes (new post from Asness) IMO very well worth readi
- Replies: 20
- Views: 3452
Re: Cliff Notes (new post from Asness) IMO very well worth r
John Rekenthaler of M* has announced an upcoming paper by Ibbotson and Idzorek, by the way. Which seems to deal with the question why there is return for X (e.g. premia):
There's More to Expected Return Than Risk
Rethinking investment convention.
http://news.morningstar.com/articlenet/ ... ?id=664536
There's More to Expected Return Than Risk
Rethinking investment convention.
http://news.morningstar.com/articlenet/ ... ?id=664536
- Fri Sep 26, 2014 3:10 pm
- Forum: Investing - Theory, News & General
- Topic: a look at technical indicators
- Replies: 19
- Views: 3087
Re: a look at technical indicators
Larry did an article about that some months ago: http://www.cbsnews.com/news/can-past-pe ... rformance/Chan_va wrote:Couldn't the exact same thing be said about the small, value and momentum premiums?
I agree however that Larry tends to include some, uh, let's call it sloppy statements in his articles (etf.com, CBS, ...). He does not hide the more nuanced details and knows the studies and all, but unfortunately this info is spread over lots of postings over the past years.
- Fri Sep 26, 2014 11:21 am
- Forum: Investing - Theory, News & General
- Topic: a look at technical indicators
- Replies: 19
- Views: 3087
Re: a look at technical indicators
You mean something like this?jdb wrote:But what about Astrology?
http://rnm.simon.rochester.edu/research/PPiCToAPA.pdfPredictive regressions find that the party of the U.S. President, the weather in Manhattan, global warming, the El Nino phenomenon, sunspots, and the conjunctions of the planets all have significant power predicting the performance of popular anomalies. The interpretation of these results has important implications for the asset pricing literature.
- Thu Sep 25, 2014 12:21 pm
- Forum: Investing - Theory, News & General
- Topic: Cliff Notes (new post from Asness) IMO very well worth readi
- Replies: 20
- Views: 3452
Re: Cliff Notes (new post from Asness) IMO very well worth r
Browser, the proposed "solution" to the MVO problem is risk parity (RP) itself. You simply ignore returns (the M in MVO) and just start planning with some risk measure (the V, but can be anything; SD, downside SD, drawdown, ...). Some RP people use correlations too, but this is not a must and less reliable. The basic idea is that for a unit of risk you should get a comparable return in the very long run, i.e. the same risk adjusted performance. But this may happen or not for stocks in your own invested timeframe. So RP people bet on different sources of "risk units" (bonds, stocks, ...). On top you have the claims about a free lunch due to behavioural errors of other investors or leverage constraints. If this whole RP th...
- Thu Sep 25, 2014 9:34 am
- Forum: Investing - Theory, News & General
- Topic: Factor exposure and (Markowitz) diversification
- Replies: 8
- Views: 1320
Re: Factor exposure and (Markowitz) diversification
Sure - aside from the turnover thing, which is not "very high" for SV. And there is another difference: Low beta seems to be a riskfree anomaly that should no be there. SV at least has some risk component which cannot be arbitraged away, though returns may be lower going forward. It also can be overcrowded from time to time, no doubt. Maybe it is at the moment. But note that the (U.S.) stock market (factor), as a slice and dice of the (global) capital market as a hole, is vulnerable to the same problem; flood of money, higher prices, lower future returns. So us the bond market, every bond sub asset class (e.g. treasuries, HY), REITS, real estate, ... Maybe the US stock market is overcrowded too at the moment, maybe not. SV? Maybe,...
- Thu Sep 25, 2014 9:06 am
- Forum: Investing - Theory, News & General
- Topic: Factor exposure and (Markowitz) diversification
- Replies: 8
- Views: 1320
Re: Factor exposure and (Markowitz) diversification
Browser, I think is a short term artefact, MOM of LowVol strategies. Have a look at Table 5 here: http://goo.gl/GlFcMJ Or at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2298117 Abstract: This paper replicates various low volatility strategies and examines their historical performance using U.S., global developed markets, and emerging markets data. In our sample, low volatility strategies outperformed their corresponding cap-weighted market indices due to exposure to the value , betting against beta (BAB), and duration factors. (The duration factor introduced here is new to the low volatility literature.) The reduction in volatility is driven by a substantial reduction in the portfolios’ market beta . For long-term investors, low vola...
- Thu Sep 25, 2014 5:32 am
- Forum: Investing - Theory, News & General
- Topic: Cliff Notes (new post from Asness) IMO very well worth readi
- Replies: 20
- Views: 3452
Re: Cliff Notes (new post from Asness) IMO very well worth r
Why these two choices? It seems his default mode of operation is to take more risk. Another alternative would be to cut your expenses now, save more and plan for a less expensive retirement. I don't think this article has personal financial life planning in mind, it's just about portfolio management. Anyway, how is this not market timing: It is! But I don't really care if the BH wiki defines it as a sin or something. :D After all, investing for one's financial goals is about probability of success and what happens when you are wrong - not dogma. So the question is: do you just get lower (crash/tail) risk and lower returns by dynamically increasing/decreasing your risk exposure? It is true that volatility is what one can anticipate/forecast...
- Wed Sep 24, 2014 2:49 pm
- Forum: Investing - Theory, News & General
- Topic: Can Active Fund Strategy Beat Vanilla Index Fund?
- Replies: 26
- Views: 4269
Re: Can Active Fund Strategy Beat Vanilla Index Fund?
The fund has been a good one. You can throw so called factors (to explain the return differences) at him as much as you want, the manager still shows signs of outperformance ("alpha"). It is small (~0.2%/year) and statistically one cannot tell it apart from random outcome though ("not significiant"). On the other hand, we are talking about after fee fund returns and a model without fees - an impressive result over both trailing 10 and trailing 20 year periods. It is worth noting that over the last 10 years the fund drifted deeper into growth territory and from largecaps a bit toward midcaps - not the other way around.
So far so good - but will it continue? This is the big question. I would not count on it.
So far so good - but will it continue? This is the big question. I would not count on it.
- Wed Sep 24, 2014 9:16 am
- Forum: Investing - Theory, News & General
- Topic: Due diligence on RAFI Pure Small Value
- Replies: 189
- Views: 28681
Re: Due diligence on RAFI Pure Small Value
I tend to agree with this. I am guilty myself.grap0013 wrote:I think focusing on factor loads gives one more sense of control and that's probably why most favor them. Psych 101.
It's pretty noisy reverse engineering. Unless maybe you have access to full blown commercial analysis with reliable data (e.g. Factset with equity model of MSCI Barra, FI model of Wilshire Axiom and so on). Even then ex-post regressions are still not that great.
- Tue Sep 23, 2014 5:33 pm
- Forum: Investing - Theory, News & General
- Topic: Due diligence on RAFI Pure Small Value
- Replies: 189
- Views: 28681
Re: Due diligence on RAFI Pure Small Value
I find it hard to accept that those numbers have a lot of value. This seems to be a general problem with those funds and quality/profitability regressions, regardless if done with PMU or QMJ. Because with PMU it's the same: I am much less certain that the (Novy-Marx) profitability loads give meaningful results (particularly for smallcap stocks). For example the profitability ("company quality") load on S&P 600 pure value is about +0.30. This makes little sense to me. The RAFI fund also has a relatively large profitability load over the full 1976 to 2013 period, and a large negative momentum load (both much larger than CRSP Small Value). Since 07/2001, the momentum load on RAFI SV was -0.19 vs. CRSP Small Value = -0.05. So it ...
- Tue Sep 23, 2014 4:19 pm
- Forum: Investing - Theory, News & General
- Topic: Hedge Funds & Diversification
- Replies: 14
- Views: 1796
Re: Hedge Funds & Diversification
Here is an easy to read blog article about the co-movement of hedgefunds with stocks and bonds. Don't skip until you reach the table at the end. http://www.multifactorworld.com/Lists/Posts/Post.aspx?List=3b285530-ccfa-416a-ba3b-de55213abe17&ID=141 I am pretty sure, if the author had included emerging market stocks and a commodity futures (CCF), the results would show an even higher connection. From some kind of Private Equity study I vaguely remember such a lagged regression showing smallcap-like stock market exposure. But with a lower R^2 number around 0.6-0.7, which is comparable to REITS or stock industry funds. In both cases there still seems to be some "unique risk" and thus diversification benefit, but you don't get this...
- Tue Sep 23, 2014 8:34 am
- Forum: Investing - Theory, News & General
- Topic: Does Equity Risk Decrease over Time?
- Replies: 51
- Views: 4800
Re: Does Equity Risk Decrease over Time?
Well, this is Siegel's story for decades now and there is even a BH wiki article about it http://www.bogleheads.org/wiki/Mean_reversion
But DFA in their "century of global returns" PDF* did only find mixed results in non-US countries and concluded: "cannot reject random walk". As far as I understand they use the same DMS dataset as the article this thread is about.
* http://goo.gl/V2eCbM (pages 16-22)
But DFA in their "century of global returns" PDF* did only find mixed results in non-US countries and concluded: "cannot reject random walk". As far as I understand they use the same DMS dataset as the article this thread is about.
* http://goo.gl/V2eCbM (pages 16-22)
- Tue Sep 23, 2014 4:19 am
- Forum: Investing - Theory, News & General
- Topic: Due diligence on RAFI Pure Small Value
- Replies: 189
- Views: 28681
Re: Due diligence on RAFI Pure Small Value
Portfolio Visualizer doesn't incorporate profitability (PMU): Nowadays you can select the Frazzini/Pedersen data set, not just F/F research and benchmark. Then you get two additional options; QMJ (Asness) and BAB (low beta). QMJ seems to be a better idea (multiple metrics), for similar reasons as for value, I think: vague concept in general (not like size), every single metrics has made or may make problems, every metric is just a second degree proxy in itself and may carry idiosyncratic noise or whatever. also there does not seem to be anything special about gross profitability: http://www.alphaarchitect.com/blog/2014/06/17/gross-profits-isnt-a-silver-bullet-for-valuation-measurement/ Here is a paper with some reasons to include a separat...
- Tue Sep 23, 2014 3:10 am
- Forum: Investing - Theory, News & General
- Topic: Southwest Airlines Engulfing, Reversal Candle Signals Downside
- Replies: 55
- Views: 7471
Re: Southwest Airlines Engulfing, Reversal Candle Signals Do
You can buy the part of technical analysis which has stood out under "grilling" with products like the MTUM ETF (0.15% ER). Relative price momentum a.k.a. the fourth factor from French's data library. Jegadeesh/Titman, Carhart and so on. At Jason Hsu's website there is a short intro in one of his course PDFs*. Interestingly this kind of momentum has shown a higher t-stat than the market factor itself - as does value, see Harvey's "factor inflation" paper**. Doesn't mean momentum will continue to behave in the future as it did in the past, of course! On the other hand, at least among U.S. stocks it does since 1801 (see "The longest backtest in the world" paper***), so there is that. Anyway, I don't see the need ...
- Sun Sep 21, 2014 8:15 am
- Forum: Investing - Theory, News & General
- Topic: A look at the large value premium
- Replies: 16
- Views: 3350
Re: A look at the large value premium
As I understand it's a UK/Ireland based ETF only, at the moment: http://www.invescopowershares.co.uk/portal/site/ukprops/template.PAGE/ouretfs/fullrange/ftserafiall-world3000ucitsetf It seems to use swaps for (synthetic) replication(?) <- No, false data at M* You can have a look at the MSCI ACWI (IMI) value weighted index. Not the same but similar methodology, although there is an important difference in how much illiquid/small stocks are included. Samuel Lee mentioned this, among other interesting things, in his M* article about Schwab's new Russell RAFI ETFs: http://news.morningstar.com/articlenet/article.aspx?id=640658 Russell and FTSE as index providers both calculate RAFI indexes - but each with a slightly different methodology. I am n...
- Sat Sep 20, 2014 8:35 pm
- Forum: Investing - Theory, News & General
- Topic: Another take on "rising equity glidepath" in retirement
- Replies: 19
- Views: 3910
Re: Another take on "rising equity glidepath" in retirement
Jared Kizer (BAM, as Larry) also did some tests, it seems: http://www.multifactorworld.com/Lists/Posts/Post.aspx?ID=148 [...] As we saw with the success rate analysis, nothing in these results indicates the rising glidepath approach is superior to the declining glidepath approach. The 5th percentile results seem to be driven more by whether the starting equity allocation was high or low and not whether a rising or declining glidepath approach was implemented. Said differently, my analysis indicates that a rising glidepath approach that starts with a low equity allocation that increases over time is basically the same as a declining glidepath approach that starts with a slightly higher equity allocation that decreases over time. Summary I ha...