Occam

Problems with smart beta

Before ESG investing came along, “smart beta” was the next big thing. Smart beta strategies involve an investor tracking an index, much like traditional index investing. Where smart beta differs from index investing is in the composition of the index being tracked. Smart beta strategies track indices which have been weighted in some other way […]

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Multifactor investing – part 2

Considerations before investing in multifactor funds As we saw in my last post, multifactor investing has provided investors with a way to harness the benefits of factor investing in a more diversified way, with lower risk than investing in any single factor. The risk of any one factor underperforming is reduced by using a multifactor

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Multifactor investing – part 1

As we saw in a previous post, factors have provided investors with a way to enjoy superior returns over a market-cap weighted benchmark over a long period of time. But what purely looking at outperformance fails to account for, is how difficult the journey to those higher returns has been. Factors have been known to

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Why do factors outperform?

Now that we’ve looked at the major factors and the evidence behind them, the obvious question becomes why do these factors exist in the first place? And are they likely to continue? Risk vs behaviour   Academics are divided over the exact reasons for factors’ outperformance, but most agree that there’s at least some combination

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What is factor investing?

Traditional active management has been receiving increasingly tough press thanks to its high costs and apparent failure to outperform index tracking funds over the long run. But one specific brand of active investing has been gaining more attention for its ability to do exactly the opposite – provide long-term outperformance at a low cost. So

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Active vs passive performance – bonds

The common wisdom in the investment industry is that whilst passive investing may work for equities, fixed income is a completely different ball game. Various reasons are given for why active management should work better in fixed income, including that bond indices overweight the most indebted companies, bond markets are less efficient, and that there

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Active vs passive performance – Japan

“NOW SHOW JAPAN” is commonly shouted (over the internet) by people looking to debunk an investment strategy. Japan is notorious for being the exception to the rule, where more common investing strategies would have struggled or failed, thanks to the country’s unique economic history – including the famous real estate bubble in the 1980s from

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Active vs passive performance – Europe

The outperformance of passive funds continues in Europe, with the majority of active funds underperforming their benchmarks over the last 10 years according to both S&P Dow Jones and Morningstar. Summary   Whilst the degree of actives’ underperformance varied between regions, S&P showed active funds underperformed in every region measured (12/12), and the only region

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Active vs passive performance – UK

Contrary to the popular belief that active strategies perform better in supposedly less efficient markets, such as the UK, 75% of large cap domestic UK active equity funds underperformed their benchmark over the last 10 years. Once factor exposure is taken into account, that figure rises to 95% of UK active funds underperforming their benchmarks.

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Active vs passive performance – USA

The US has always been seen as a region where passives do well. The conventional thinking is that there are thousands of analysts and investment managers covering the stocks in the S&P 500, so the stocks should be pretty efficiently priced. Unsurprisingly, that seems to be the case, with passives trouncing their active counterparts over

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Fees

This is the third post in a series of three on the factors that determine how much we can expect to make from investing. The first post covered how our risk tolerance affects our returns, the second post explored how our time horizon affects our returns, and this post covers how the fees we pay

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Time

This is the second post in a series of three on the factors that determine how much we can expect to make from investing. The previous post covered how our risk tolerance affects our returns, this post explores how our time horizon affects our returns, and the next post covers how the fees we pay

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Risk

This is the first post in a series of three on on the factors that determine how much you can expect to make from investing. How your risk tolerance affects your returns is covered in this post, and it’s this, combined with how long you invest for, and how much you pay for your investments,

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Why should I invest?

No matter how high your income is, we’re all faced with the same four choices of what to do with our hard-earned cash. We can all either save it, spend it, invest it, or donate it. Saving in a bank account is relatively easy, spending is covered in a later post, and I’m not going

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