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Diversification Is Key to Factor Investing

As my co-author, Andrew Berkin, and I explain in our forthcoming book, “Your Complete Guide to Factor-Based Investing,” no matter how strong the evidence regarding the persistence and pervasiveness of an investment factor’s return premium, there’s some chance that the factor will experience long periods of underperformance. You can see the evidence of this in…

‘Free Lunch’ Investing Takes Time To Cook

ETF

As the director of research for The BAM Alliance, I’ve been getting lots of calls recently from investors questioning their international equity investments. This hasn’t been a surprise, as any time an asset class does poorly, a significant number of investors will question why they own that asset. One particular inquiry I received addressed the…

Hedge Funds Fail Across Asset Classes

ETF

Hedge funds began this year coming off their seventh-straight year of trailing U.S. stocks (as measured by the S&P 500 Index) by significant margins. What’s more, for the 10-year period ending 2015 (one that included the worst bear market in the post-Depression era), the HFRX Global Hedge Fund Index managed to return just 0.1% a…

The Dangerous Education Gap

A large body of research on the behavior of individual investors has demonstrated that low levels of financial knowledge, in addition to biases in the selection and processing of information, drive suboptimal financial choices. Among the findings from the literature are: Men tend to be more financially literate than women, independent of country of residence,…

Investing in Consumer Loans Comes More Into Focus

Online peer-to-peer (P2P) lending is emerging as a provider of credit to individuals as well as small businesses, with the potential to benefit borrowers (by reducing the high cost of bank credit, credit card debt and payday loans) and lenders (by providing opportunities to earn higher yields). A significant hurdle for investors, however, is the…

How Your Own Biases Are Hurting Your Portfolio

You’re no fool. But let’s imagine for a second that a major public figure said something—something false—over and over (and over) again. Regardless of its questionable veracity, is there a chance you’d be more likely to believe the proclamation simply because you’ve heard it often and recently? Like it or not, the answer is an…

Is Momentum Really Dead?

ETF

Earlier this week, we examined a study that sought to determine whether the publication of academics’ findings on the momentum factor have led to a disappearing premium. To review, Steven Dolvin and Bryan Foltice, authors of the 2016 study “Where Has the Trend Gone? An Update on Momentum Returns in the U.S. Stock Market,” found…

The Dangerous Educational Gap

ETF

A large body of research on the behavior of individual investors has demonstrated that low levels of financial knowledge, in addition to biases in the selection and processing of information, drive suboptimal financial choices. Among the findings from the literature are: Men tend to be more financially literate than women, independent of country of residence,…

Consumer Loan Investing Comes Into Focus

ETF

Online peer-to-peer (P2P) lending is emerging as a provider of credit to individuals as well as small businesses, with the potential to benefit borrowers (by reducing the high cost of bank credit, credit card debt and payday loans) and lenders (by providing opportunities to earn higher yields). A significant hurdle for investors, however, is the…

This Is What Makes Muni Bonds Attractive

ETF

At one point near the end of July, using data from Bloomberg, the 10-year Treasury note was yielding 1.47% and 10-year AAA-rated municipals were yielding a virtually identical 1.46%. From a tax perspective, given their federal tax exemption (and for most residents buying their own state’s bonds, a local tax exemption as well) we would…

When Risk Offers No Rewards

ETF

Idiosyncratic (also referred to as nonsystematic) risk is specific to a single asset or to a small group of assets. Idiosyncratic risk has little or no correlation with market risk. Therefore, it can be substantially mitigated or eliminated by sufficiently diversifying a portfolio. Because it can be mitigated, investors aren’t rewarded with higher expected returns…

Why Momentum Is Struggling

ETF

Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. Mark Carhart, in his 1997 study “On Persistence in Mutual Fund Performance,” was the first to use momentum, together with the three Fama-French…

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