The After-Fee Performance of Private Debt
Private debt funds are a rapidly growing segment of the private capital market. Isil Erel, Thomas Flanagan, and Michael Weisbach, authors of the April 2024 [...]
About Larry Swedroe
Larry Swedroe is the author or co-author of 18 books on investing, including his latest Enrich Your Future.Evergreen Private Equity Funds Attracting Assets
Evergreen funds are a relatively new concept in the private equity (PE) world compared to traditional closed-end funds. They were introduced to address the negatives of the traditional way to invest in private equity which had been in the form of partnerships.
The Effect of ESG Strategies on Global Equity Returns
To determine the impact of sustainable investment strategies on equity returns, Romulo Alves, Philipp Krueger, and Mathijs van Dijk analyzed the relationship between ESG ratings and global stock returns. They found very little evidence that ESG ratings were related to global stock returns over the two-decade period.
Overvalued or New Paradigm?
Without question the topic of greatest debate among investors, including investment professionals, and financial economists, is whether or not the market, and the technology sector in particular, is overvalued. There are two very strong conflicting views regarding not only the current valuation of technology stocks, but also the valuation of the entire asset class of large-cap growth stocks. One side, I’ll call the “new paradigm” or “it’s different this time” school. The other side, I’ll call “the been there, done that” school. Its theme is those that don’t learn from the past are doomed to repeat the same mistakes. No two sides could have more different viewpoints. To understand each side, let’s imagine a dialogue between the two schools.
The Value of WallStreetBets Investment Research Recommendations
Wallstreetbets has become an increasingly prominent source of investment research. Do their recommendations have value?
The Negative Impact of Crowding on Active Fund Performance
The shrinking pool of public companies across which active funds can diversify their holdings, increases the risk of crowding, which the research we reviewed shows negatively impacts performance. That provides yet another reason for investors to choose to avoid playing the loser’s game of active management.
The Impact of Amortizing Volatility across Private Investments
The amortization of volatility should be of concern for private capital asset classes. In order to properly budget for beta risks, it is critical that investors in private assets understand the amount of systemic (beta) risk that will “wash” into their private portfolios.
Explaining the Performance of Low-Priced Stocks: The Penny Stock Anomaly
An efficient way to improve the expected performance of an equity strategy would be to systematically exclude penny stocks, as well with high asset growth and extreme past returns, especially if they have low profitability (and exclude funds that don’t screen out such stocks).
Polluters Provide Higher Returns than Non-Polluters
Atilgan, Demirtas, and Gunaydin found that there has been a pollution premium for US stocks and that the premium translated into superior investment performance.
U.S. Companies Have Outperformed Japanese Companies, or Have They?
While both the S&P 500 and the Nikkei indices have recently hit all-time highs, the valuation and balance sheet data we have reviewed indicate that the downside risks in Japanese stocks appear to be far less than the risks in U.S. stocks. Evidence such as this helps explain why legendary investor Warren Buffett has been buying Japanese stocks.
When Shorts Don’t Short
Low short positions come from positive public news, while negative news can drive average short or extremely high short positions
Private Equity May Not Be the Diversifier We Think (Due to Volatility Laundering), But Private Credit Could Be
Volatility laundering causes the risk-adjusted returns and the diversification benefits of private equity to be significantly overstated. However, the problem of volatility laundering is not a problem for all private investments, specifically not for high-quality, floating rate, private credit.
The Halo Effect Drives Demand for Sustainable and Impact Investments
Both investment motives and investment experience are important determinants for investors’ ability to assess (impact) investment opportunities. While investor preference can justify accepting a lower return as the cost of expressing their values, the halo effect should not play a role in making that assessment—both economic theory and empirical evidence should lead investors to expect lower returns on sustainable investments.
Quality, Factor Momentum, and the Cross-Section of Returns
There is strong empirical evidence demonstrating that momentum (both cross-sectional and time-series) provides information on the cross-section of returns of many risk assets and has generated alpha relative to existing asset pricing models. Ma, Yang, and Ye’s findings provide another test of both robustness and pervasiveness, increasing our confidence that the findings of momentum in asset prices are not a result of data mining.
Momentum Everywhere, Even Cross-Country Factor Momentum
There is strong empirical evidence demonstrating that momentum (both cross-sectional and time-series) provides information on the cross-section of returns of many risk assets and has generated alpha relative to existing asset pricing models.
Social Media: The Value of Seeking Alpha’s Recommendations
The finding that the recommendations from SA articles resulted in statistically significant risk-adjusted alphas (returns unexplained by conventional academic models using factors such as the market, size, value, momentum, profitability, and quality for equity portfolios) is surprising given that the empirical evidence shows how difficult it is for institutional investors such as mutual funds to show outperformance beyond the randomly expected (as can be seen in the annual SPIVA Scorecards) because of market efficiency.
Using Machine Learning Programs to Forecast the Equity Risk Premium
To date, the best metric we have for forecasting future equity returns and the ERP is current valuations. An interesting question is whether more complicated methods using newly developed machine learning models can provide superior forecasts.
Momentum and the Clarity of the Trend
Momentum continues to receive much attention from researchers because of the strong empirical evidence.
Social Media, Analyst Behavior and Market Efficiency
Hibbert, Kang, Kumar and Mishra provided us with yet another explanation: social media is providing analysts with information that reduces their forecasting errors. The result has been an increase in market efficiency, leading to a reduction in the PEAD anomaly. The bottom line is that the ability to generate alpha continues to be under assault—trying to outperform the market by stock selection is becoming even more of a loser’s game.
The Performance of the Hedge Fund Industry
New research reveals that the performance of the hedge fund industry has not been as bad as the results from studies that relied on hedge fund data providers.