If you’re an investor based in the UK, you’ve probably heard of Vanguard. They’re a hugely popular fund manager, and offer a slew of attractively priced, predominantly passive, funds for investors to choose from on their platform. But with so much choice comes some tricky decisions. Which fund, or funds, should you choose? Which is …
The best Vanguard passive index tracker funds for UK investors Read More »
To those who have made it to the conclusion of this series, I salute you. We’ve covered a lot of ground in the last eight posts, but hopefully now you’ve reached the end you have a more evidence-based opinion on why it’s unlikely that passive investing causes bubbles. I appreciate there’s been a lot of …
A summary: Is passive investing causing a bubble? Read More »
This is the eighth part in a series examining the evidence behind the claim that passive investing is causing a bubble. For the previous part, which asks the question, “Where are all the outperforming active managers?”, click here. — “Every morning in Africa, a gazelle wakes up, it knows it must outrun the fastest lion …
Why passive investing is increasing market efficiency Read More »
This is the seventh part in a series examining the evidence behind the claim that passive investing is causing a bubble. For the previous part, on whether passive investing is causing large stocks to get even larger, click here. — If passives were distorting prices, if dispersion was reducing, and if equity concentration was increasing, …
Where are all the outperforming active managers? Read More »
This is the sixth part in a series examining the evidence behind the claim that passive investing is causing a bubble. For the previous part, on whether passive investing is making the market more concentrated, click here. — Looking at the behaviour of the largest stocks in the world can offer us some interesting insights …
This is the fifth part in a series examining the evidence behind the claim that passive investing is causing a bubble. For the previous part, on whether passive investing causes market crashes click here. — “Last year was a particularly narrow year for the stock market.” If you’ve ever read a market commentary from your …
Is passive investing making the market more concentrated? Read More »
This is the fourth part in a series examining the evidence behind the claim that passive investing is causing a bubble. For the previous part, on whether passive investing is setting prices, click here. — Let’s assume for a moment that there is a relationship between indexing and market crashes. Indexing, for whatever reasons, increases …
This is the third part in a series examining the evidence behind the claim that passive investing is causing a bubble. For the previous part, on how much of the market is passively invested, click here. — In the previous section we looked at whether enough of the market was invested in passives to cause …
This is the second part in a series examining the evidence behind the claim that passive investing is causing a bubble. For the first part, on Sharpe’ Arithmetic of Active Management, click here. — For any investment strategy to distort the market, it must be big. Very big. And, despite all the clamour around the …
Is passive investing really worse than Marxism? Is it creating a ‘frightening risk for markets’? Or are the concerns around passive investing nothing more than trumped-up fearmongering? This series begins by examining one of the most fear-inducing (and therefore one of the most persuasive) claims thrown at passive investing – that the rise of passive …
In this series of posts, we’ve seen several reasons why factor returns found in academia might not translate into the real-world performance of smart beta funds. To bring the series together, I’ve provided a few examples below of how the various topics we’ve discussed have impacted the smart beta landscape, and what this means for …
Problems with smart beta – part 7.5: Some examples Read More »
This is the eighth part of a series discussing some of the problems associated with investing in “smart beta” strategies. For the previous post on how factor returns from academia don’t always translate into actual returns, click here. Would you entrust your investments to a group of monkeys? Probably not. What if you were told …
This is the fourth post in a mini-series on how factor returns from academia can be different to those from smart beta investing. For the previous post on how trading costs can impact factor returns, click here. I recently read a fascinating story featuring a blind doctor. It’s not often you hear about blind doctors, …
Problems with smart beta – part 7.4: The human factors Read More »
This is the third post in a mini-series on how factor returns from academia can be different to those from smart beta investing. For the previous post on how factors tend to work better in small caps, click here. Sir John Hawkins was an English ship’s captain during the 1500s, and was the second cousin …
Problems with smart beta – part 7.3: Trading costs Read More »
This is the second post in a mini-series on how factor returns from academia can be different to those from smart beta investing. For the previous post on how long only smart beta exposure compares to long/short factor exposure, click here. A sad truth for investors is that size really does matter. But contrary to …
Problems with smart beta – part 7.2: Factors work better in small caps Read More »
This is the first post in a mini-series on how factor returns from academia can be different to those from smart beta investing. Perhaps the most obvious difference between factors and smart beta is that factors are long/short. Given that the vast majority of smart beta ETFs are long-only, it’s only sensible to assume that …
Problems with smart beta – part 7.1: Factors are long/short Read More »
This is the seventh post in a series discussing some of the problems associated with investing in “smart beta” strategies. For the previous post on how combining factors might result in regular beta, click here. The Tacoma Narrows bridge spanned the Tacoma Narrows strait in the US state of Washington, and was opened to the …
Problems with smart beta – part 7: Academia is not real life Read More »
This is the sixth post in a series discussing some of the problems associated with investing in “smart beta” strategies. For the previous post on how difficult it can be to tell when a factor stops working, click here. When I was at school, I remember wondering to myself during art lessons why, whenever I …
Problems with smart beta – part 6: Factor dilution Read More »
This is the fifth post in a series discussing some of the problems associated with investing in “smart beta” strategies. For the previous post on how factors can decay after they become widely known, click here. We saw in a previous post that factors in the US have been providing pretty torrid returns since 2003. …
Problems with smart beta – part 5: It’s impossible to know when a factor stops working Read More »
This is the fourth post in a series discussing some of the problems associated with investing in “smart beta” strategies. For the previous post on the how factors can change, click here. There’s an old story about two economists who were walking down the street, when one stops and says, “Look, there’s a £20 note …
This is the third post in a series discussing some of the problems associated with investing in “smart beta” strategies. For the previous post on the importance of defining a factor, click here. A further problem with investing in smart beta funds is that factors don’t always stay the same. As time has gone on, …
Problems with smart beta – part 3: Factors can change Read More »
This is the second post in a series discussing some of the problems associated with investing in “smart beta” strategies. For the previous post on the cyclicality of factors, click here. Defining a factor is hard One of the other major problems with smart beta is that one person’s idea of what constitutes a …
Problems with smart beta – part 2: Defining a factor is hard Read More »
This is the first post in a series discussing some of the problems associated with investing in “smart beta” strategies. Everyone’s seen the quilt chart used to show the return dispersion between asset classes, but it works equally well for factors. Factors have just as much dispersion as asset classes, and can have wildly different …
Problems with smart beta – part 1: The cyclicality of factors Read More »
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 …
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 …
