Don’t Exclude Emerging Markets

Thirty years ago, emerging markets made up only about 1% of world equity market capitalization and just 18% of global GDP. As such, the ability to invest in emerging markets was limited—the few funds available were high-cost, actively managed funds. Today the world looks very different. Emerging markets represent about 13% of global equity capitalization […]

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Topics: Advice, Investing, Investment Strategy, Market Insights

Has the Size Premium Disappeared?

Financial research has uncovered many relationships between investment factors and security returns. As director of research for Buckingham Strategic Wealth and The BAM Alliance, one of the most-asked questions I receive is whether such relationships will continue after that research has been published. Said another way, if everyone knows about a factor premium, should we […]

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Topics: Advice, Market Insights

Testing the Fama-French Five-Factor Model

The history of asset pricing models is one of evolution. As anomalies are discovered, our knowledge advances and new models are developed. Building on the work of Harry Markowitz, the trio of John Lintner, William Sharpe and Jack Treynor are generally given most of the credit for introducing the first formal asset pricing model, the […]

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Topics: Advice, Market Insights

Understanding Different Types of Risks

Harry Markowitz received the Nobel Prize in Economic Sciences in 1990 for his contributions to the body of work known as “modern portfolio theory.” Probably his greatest contribution was to turn the focus away from analyzing the risk and expected return of individual investments to considering how its addition impacts the risk and expected return […]

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Topics: Advice, Investing, Market Insights

More Hazards of Individual Stocks

In a recent article that highlighted the perils of owning individual stocks, I offered the historical evidence demonstrating how only a small percentage of stocks have accounted for all the gains provided by the market—with the vast majority earning a big, fat zero in aggregate cumulative returns, even before considering the impact of inflation or taxes. […]

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Topics: Advice, Market Insights

Active Management Falls Short With Bonds, Too

In a July 2017 Q&A with WealthManagement.com, Western Asset Management CIO Ken Leech asserts that passive investing is unlikely to play as large a role in fixed income as it does now in equities because active managers outperform their benchmarks much more in the bond market than they do in the stock market. While the trend toward […]

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Topics: Advice, Investing, Market Insights

The Momentum Factor: Fundamental or Price?

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. The momentum effect is one of the most pervasive asset pricing anomalies documented in the financial literature: Stocks with the highest returns over […]

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Topics: Advice, Market Insights

Europe’s SPIVA Results Are Nothing New

Earlier this week, I provided some highlights of from the S&P Dow Jones Indices Versus Active (SPIVA) 2016 U.S. Scorecard. Today we’ll look at the SPIVA Europe Scorecard, which compares the performance of actively managed equity funds to their appropriate index benchmarks. The year-end 2016 Scorecard provides us with 10-year data. While not surprising to those familiar […]

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Topics: Advice, Investing, Market Insights

The Antidote To Stock Market Hysteria

Just for fun, Google the words “market pullback.” There are over 2.2 million results–most of them market predictions–and the first page of results is dominated by calls for an imminent market reversal that the simple desk calendar has already proven false. However, despite their worthlessness, market predictions remain as predictable as market opens and closes. […]

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Topics: Market Insights