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Posts From Research Affiliates

Is Diversification Dead?

Is Diversification Dead?

🕔13:24, 16.Feb 2021

In 1952, Harry Markowitz published “Portfolio Selection” and helped usher in the era of modern portfolio theory. Harry’s work showed us that a portfolio’s risk is not defined by the riskiness of its individual assets, but by the extent the portfolio’s assets’ price movements …

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Is ESG a Factor?

Is ESG a Factor?

🕔11:04, 27.Jul 2020

Increasingly, investors are asking if ESG is a factor. We answer this question using the criteria set forth by our Research Affiliates colleagues in their 2016 Graham and Dodd Scroll–winning article, “Will Your Factor Deliver? An Examination of Factor Robustness

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The COVID-19 Crash and the Abandonment of the Pensioner

The COVID-19 Crash and the Abandonment of the Pensioner

🕔14:42, 22.Jun 2020

Between mid-February and late March 2020, we saw a “take no prisoners” market crash. Anything with a whiff of perceived risk crashed, in direct proportion to its perceived risk. The only assets that soared—because of …

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Is Value Investing Structurally Impaired?

Is Value Investing Structurally Impaired?

🕔13:36, 1.May 2020

Over the last roughly 13 years, and exacerbated by the severe market downturn in the first quarter of 2020, US value stocks have experienced their longest and deepest drawdown since 1963. Prior to 2020, Australian value stocks were spared the

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Too Soon? Pandemic Policy Response Raises Risk of Inflation

Too Soon? Pandemic Policy Response Raises Risk of Inflation

🕔12:14, 20.Apr 2020

Now is too soon to worry about inflation from a public policy perspective given the immediate humanitarian need for disaster relief. Many millions of newly unemployed people need cash now to pay bills and just to buy food for themselves

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Too Soon? Pandemic Policy Response Raises Risk of Inflation

Too Soon? Pandemic Policy Response Raises Risk of Inflation

🕔15:45, 16.Apr 2020

Now is too soon to worry about inflation from a public policy perspective given the immediate humanitarian need for disaster relief. Many millions of newly unemployed people need cash now to pay bills and just to buy food for themselves

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Leading in Uncertain Times

Leading in Uncertain Times

🕔13:37, 8.Apr 2020

As we face the serious and stressful challenge of the COVID-19 humanitarian crisis, we are forced to conduct business in unfamiliar ways. Prime among these is that we are working from home, where we must adapt to social distancing, new

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Oh My! What’ s This Stuff Really Worth?

Oh My! What’ s This Stuff Really Worth?

🕔09:31, 13.Mar 2020

We’ve all heard the maxim “when the US sneezes, the world catches a cold.” In the last few weeks, the truth in this saying has made itself evident, although in this case, China did more than sneeze. In our interconnected

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What a Difference an ESG Ratings Provider Makes!

What a Difference an ESG Ratings Provider Makes!

🕔17:21, 13.Jan 2020

KEY POINTS – ESG ratings vary markedly by ESG ratings provider because each provider has a unique methodology for assigning company-specific ratings. Investors, therefore, must ensure the approach taken by the ratings provider they rely on is consistent with their

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What a Difference an ESG Ratings Provider Makes!

What a Difference an ESG Ratings Provider Makes!

🕔06:53, 9.Jan 2020

• ESG ratings vary markedly by ESG ratings provider because each provider has a unique methodology for assigning company-specific ratings. Investors, therefore, must ensure the approach taken by the ratings provider they rely on is consistent with their ESG preferences

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Plausible Performance: Have Smart Beta Return Claims Jumped the Shark?

Plausible Performance: Have Smart Beta Return Claims Jumped the Shark?

🕔15:35, 4.Dec 2019

Key Points Performance backtests are often used as evidence to “prove” a smart beta strategy is “better” than its competitors. In our view, careful attention must be given to these claims because backtested results are easily data mined. The historical

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Standing Alone Against the Crowd: Abandon Value? Now?!?

Standing Alone Against the Crowd: Abandon Value? Now?!?

🕔14:36, 20.Nov 2019

The current value–growth cycle has been particularly daunting for anyone with a value orientation. Value has been out of favor for approximately 12 years at this point. In this prolonged phase of growth dominance, the patience of investors in RAFI™

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The Advisor’s Case for Smart Beta Direct Indexing

The Advisor’s Case for Smart Beta Direct Indexing

🕔14:41, 12.Sep 2019

Smart beta direct indexing is an increasingly accessible implementation route that accommodates tax-loss harvesting and customizations based on client preferences and circumstances. Advisors are uniquely positioned to assess whether this approach fits into their clients’ portfolios, and if so, to

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Narrative Economics Part 1

Narrative Economics Part 1

🕔14:32, 10.Sep 2019

Nobel Laureate Robert Shiller, interviewed by Rob Arnott, expounds on the importance of narratives in driving economic events.

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Can the Market Multiply and Divide? Non-Proportional Thinking in Financial Markets

Can the Market Multiply and Divide? Non-Proportional Thinking in Financial Markets

🕔13:51, 26.Jul 2019

Kelly Shue’s research challenges the conventional wisdom that size is the fundamental determinant of volatility and offers investors a window on an under-appreciated driver of asset price movements. 

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Bubble, Bubble, T oil and Trouble

Bubble, Bubble, T oil and Trouble

🕔13:03, 12.Jul 2019

In April 2018, we published our most-downloaded article ever, “Yes. It’s a Bubble. So What?” Our key purpose was not to make the observation that “Yes, it’s a bubble,” but to offer a formal definition of bubble, which is perhaps

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he History of the Cross-Section of Stock Returns

he History of the Cross-Section of Stock Returns

🕔13:05, 20.Jun 2019

Juhani Linnainmaa cautions investors to be wary of alpha decay in newly discovered factors. Using fresh, pre-discovery data, his out-of-sample analysis shows about half of the many factors tested were not robust.

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Strategies for Reducing Failures of Self-Control

Strategies for Reducing Failures of Self-Control

🕔13:05, 20.Jun 2019

David Laibson discusses his findings on what types of strategies work best to encourage investors to exert selfcontrol, whether it may be saving more for retirement or resisting the impulse to sell into a falling market.

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Surprise! High Employee Satisfaction = More Positive Earnings

Surprise! High Employee Satisfaction = More Positive Earnings

🕔13:05, 20.Jun 2019

ESG and SRI strategies filter companies on metrics that often measure intangibles. Alex Edmans finds that employee satisfaction does correlate with corporate outcomes, but the market is not yet adequately valuing this intangible.

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Dismiss MMT at Your Peril

Dismiss MMT at Your Peril

🕔13:04, 19.Jun 2019

1. Modern Monetary Theory (MMT) argues that governments with fiat currencies should coordinate treasury and central bank actions to fund government programs by directly printing money, unconstrained by tax receipts or borrowing capacity. 2. Progressive politicians embrace MMT because the

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Strike the Right Balance in Multi-Factor Strategy Design

Strike the Right Balance in Multi-Factor Strategy Design

🕔12:04, 18.Jun 2019

1. Our analysis examines combinations of six factors (value, low beta, profitability, investment, momentum, and size) in simple long-only, investable portfolios that reflect real-world strategies. Based on our research, these six factors produce a substantial diversification benefit across return drivers.

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The Winning Formula: Mission + Culture + Team

The Winning Formula: Mission + Culture + Team

🕔12:06, 17.Jan 2019

At Research Affiliates, our winning formula focuses on mission, culture, and team. We believe a corporate culture that supports the development of its employees will in turn contribute to the long-term success of clients, partners, and the firm itself. We

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Alternative Risk Premia: Crisis or Opportunity?

Alternative Risk Premia: Crisis or Opportunity?

🕔12:06, 22.Dec 2018

We define and study the alternative risk premia (ARP) universe through four distinct core strategy types: equity neutral, volatility, trend, and macro. We believe that a host of underlying drivers, which include rising price volatility, individual factor investing risks, and

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The Challenges of Diversity Investing

The Challenges of Diversity Investing

🕔12:05, 20.Dec 2018

Both academic research and our own experience indicate that the business case for corporate diversity is compelling as a result of higher collective intelligence. Testing the investment case for greater diversity faces two major challenges: insufficient historical data and difficulty

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Ignored Risks of Factor Investing

Ignored Risks of Factor Investing

🕔12:00, 7.Dec 2018

What Matters in Multi-Factor Investing? Ignored Risks of Factor Investing Multifactor Design, Part 1 – Mixing vs. Integrating Multifactor Design, Part 2 – Keep a Handle on Trading Costs Issues in ESG Integration

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The Biggest Failure in Investment Management: How Smart Beta Can Make It Better or Worse

The Biggest Failure in Investment Management: How Smart Beta Can Make It Better or Worse

🕔12:05, 23.Oct 2018

The negative gap between investor returns and fund returns is the biggest failure in investment management. Alpha is only a sideshow. If we extrapolate the investor returns gap to smart beta strategies, poor client timing will completely negate the potential

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Ignored Risks of Factor Investing

Ignored Risks of Factor Investing

🕔11:02, 15.Oct 2018

Factor investing Factor investing, an investment approach which targets specific stock characteristics such as value or momentum, is becoming a stronghold of investor portfolios.1 Many factor-investing strategies are popular for good reason: they are transparent, offer exposure to widely agreed-upon

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Alternative Risk Premia:

Alternative Risk Premia:

🕔13:13, 21.Sep 2018

Valuable Benefits for Traditional Portfolios For most investors, earning less than a 5% annualized total return above inflation means they will likely fall short of meeting their financial needs in retirement. A couple of years ago, our colleagues West and

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Where Is the Global Economy Going?

Where Is the Global Economy Going?

🕔13:25, 9.Aug 2018

Investors are wise to look at more granular classifications of the business cycle and not just relatively infrequent NBER recessions. Yield-curve slopes and equity market returns can be used as nowcasting signals to identify turning points of the business cycle.

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Rebalance or Rush Hour?

Rebalance or Rush Hour?

🕔13:13, 3.Aug 2018

Key Points Systematic rebalancing raises the likelihood of improving long-term risk-adjusted investment returns. The benefits of rebalancing result from opportunistically capitalizing on human behavioral tendencies and long-horizon mean reversion in asset class prices. Investors who “institutionalize contrarian investment behavior” by

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Are Our TDFs Massively Underweight InflationFighting Assets?

Are Our TDFs Massively Underweight InflationFighting Assets?

🕔13:13, 28.Jul 2018

We both recently moved and bought homeowners’ insurance, once again. Like most Americans,1 for our most valuable assets—our homes typically being the most valuable asset—we willingly pay for protection against a variety of natural disasters such as earthquakes, hurricanes, tornados,

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Where Is the Global Economy Going?

Where Is the Global Economy Going?

🕔13:13, 28.Jul 2018

As in aviation, the questions “Why is it doing that?” and “Where are we?” also happen to be very commonly posed by economists and market watchers. For the most part, we never truly know where we are in an economic

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The Bubble That Never Came

The Bubble That Never Came

🕔13:14, 24.Jul 2018

… and Other Misconceptions about Treasury Bonds In the frantic months following the fall of Lehman Brothers in 2008, the US Federal Reserve embarked on an unprecedented program of unconventional monetary policy easing. This program included purchases of mortgage-backed securities as

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Pundits Predicting Panic in Emerging Markets

Pundits Predicting Panic in Emerging Markets

🕔11:02, 16.Jul 2018

Key Points With EM stock prices plummeting and investors fleeing EM funds, the fear of emerging markets is palpable. Our examination of three key metrics—external debt, foreign exchange reserves, and current account balance—shows, however, that EM countries have low risk

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Pundits Predicting Panic in Emerging Markets

Pundits Predicting Panic in Emerging Markets

🕔12:14, 28.Jun 2018

With EM stock prices plummeting and investors fleeing EM funds, the fear of emerging markets is palpable. Our examination of three key metrics—external debt, foreign exchange reserves, and current account balance—shows, however, that EM countries have low risk of a

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The “Tax Alpha” is always negative

The “Tax Alpha” is always negative

🕔13:17, 23.Jun 2018

Advisor Symposium Presentation

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Buy High and Sell Low with Index Funds!

Buy High and Sell Low with Index Funds!

🕔13:17, 23.Jun 2018

Arguments in favor of traditional passive index funds seem compelling. They offer low fees, limitless liquidity, and broad market participation. They match market performance and have negligible trading costs and tracking error—and they beat most active managers, most of the

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Is Your Alpha Big Enough to Cover Its Taxes?

Is Your Alpha Big Enough to Cover Its Taxes?

🕔13:13, 15.Jun 2018

Investors and their advisors must be alert to managing both pre-tax and after-tax alpha in order for investors to realize the highest possible return from their taxable portfolios. Increasingly, the opportunities to accomplish both goals are within reach of investors

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CAPE Fear: Why CAPE Naysayers Are Wrong

CAPE Fear: Why CAPE Naysayers Are Wrong

🕔13:14, 22.May 2018

The CAPE (cyclically adjusted PE) ratio is not a useful timing signal for market turning points, but is a powerful predictor of long-term market returns. Many arguments have been offered to justify elevated CAPE ratios. Most or all of the

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Food for Thought: Integrating vs. Mixing

Food for Thought: Integrating vs. Mixing

🕔13:02, 22.May 2018

The diversified approach of a multi-factor strategy offers a “smoother ride” through economic and market cycles than a single-factor strategy. Investors should consider both the quantitative and qualitative characteristics of the two most popular multi-factor strategy construction methods—mixing and integrating—before

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The Misguided Beliefs of Financial Advisors

The Misguided Beliefs of Financial Advisors

🕔13:15, 18.May 2018

Advisor Symposium presentation

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Timing Poorly and Other Related Investment Sins

Timing Poorly and Other Related Investment Sins

🕔13:15, 18.May 2018

Empirical Evidence of Bad Investor Outcome We Are All Bad at Market Timing How Should You Really Estimate Performance?

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Smart Beta Selection

Smart Beta Selection

🕔13:15, 18.May 2018

Pick the Right One! Presentation Adisor Symposium

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The BlockChain Identity

The BlockChain Identity

🕔13:15, 18.May 2018

There is no “the” blockchain … blockchain is a technology. Concept invented by Haber and Stornetta (1991) in the context of time-stamping digital documents. Also, blockchain is not bitcoin. Bitcoin uses a blockchain technology.

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Yes. It’ s a Bubble. So What?

Yes. It’ s a Bubble. So What?

🕔15:02, 21.Apr 2018

“The market can stay irrational longer than you can stay solvent.” The relentless rise in the US stock market since its low in 2009 has been dramatic. US stock market valuations now exceed all historical valuation levels, except for those

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Unlocking the Performance Potential in ESG Investing

Unlocking the Performance Potential in ESG Investing

🕔01:02, 4.Apr 2018

Key Points The demand for socially responsible investing strategies is growing as a means to manage environmental, social, and governance (ESG)–related risks—which can impact longterm returns—and as an opportunity to promote social and environmental issues, but much remains unknown about

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Unlocking the Performance Potential in ESG Investing

Unlocking the Performance Potential in ESG Investing

🕔01:02, 4.Apr 2018

Key Points The demand for socially responsible investing strategies is growing as a means to manage environmental, social, and governance (ESG)–related risks—which can impact longterm returns—and as an opportunity to promote social and environmental issues, but much remains unknown about

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Performance Measurement

Performance Measurement

🕔01:02, 16.Mar 2018

How to Do It If We Must Assessing our portfolios’ performance is a necessary activity, but by being aware that measurement over shorter time horizons is dominated by noise, we can better resist the natural human instinct to “do something”—typically

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When Value Goes Global

When Value Goes Global

🕔17:02, 8.Mar 2018

Value investing, a well-known and popular strategy, enjoys broad adoption in the investment community and is supported by a wide array of academic articles. Investors likely associate the word “value” with terms such as book-to-market ratio, price-to-earnings ratio, and bond

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Craftsmanship in Smart Beta

Craftsmanship in Smart Beta

🕔11:02, 5.Mar 2018

Strategy Selection While somewhat at odds with today’s big-data, warp-speed approach to life and work, thoughtful craftsmanship—the product design and implementation elements that are tangible, measurable, and impactful—can create positive, persistent results in portfolio performance. Investors seeking to add smart

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Twitter

"Has the tide finally turned for #emergingmarkets #equities after a decade of trailing #US markets? It’s a question we often hear." 5 reasons why EM equities could power ahead in #2021 by @CapitalGroup -> https://www.opiniopro.com/2021/02/capital-group/5-reasons-why-em-equities-could-power-ahead-in-2021/

The underperformance of Value vs. Growth stocks explained

From the winter edition of our VBA Journaal, written by Jeroen Kakebeeke RBA, Investment Risk Manager at PGGM
#valueinvesting #growthinvesting

https://nieuws.cfavba.nl/publicaties/the-underperformance-of-value-vs-growth-stocks-explained/4a37e54d-5361-11eb-8a1e-005056b303d3

Reflation, Flation, What’s Your Nation? https://www.etftrends.com/model-portfolio-channel/reflation-flation-whats-your-nation/ #ETF #tracker

Not many places to hide last week, but #cyclical sectors held up relatively well amidst the backup in rates.

#financials
#industrials
#energy

@FactSet data

#MoneyMarketFunds that lend to #PrivateSector borrowers experienced large withdrawals during the financial stress of March 2020, but cumulative outflows differed considerably across funds https://www.bis.org/publ/qtrpdf/r_qt2103b.htm

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