Active vs passive

Problems with smart beta – part 1: The cyclicality of factors

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 »

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 …

Problems with smart beta Read More »

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 investing – part 2 Read More »

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 …

Multifactor investing – part 1 Read More »

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 …

Why do factors outperform? Read More »

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 …

What is factor investing? Read More »

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 …

Active vs passive performance – bonds Read More »