Fixing the poor performance of the book-to-market ratio
By Tommi Johnsen, PhD|August 19th, 2024|Tommi Johnsen, Research Insights, Factor Investing, Academic Research Insight, Other Insights, Value Investing Research|
The authors effectively argue the case for intrinsic value and DCF based approaches to building Value factor strategies. The traditional value measures, especially the book-to-market ratio, are described as ineffective in today's market environment.
The Effect of ESG Strategies on Global Equity Returns
By Larry Swedroe|August 16th, 2024|ESG, Larry Swedroe, Research Insights, Other Insights|
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.
Global Factor Performance: August 2024
By Wesley Gray, PhD|August 13th, 2024|Index Updates, Research Insights, Factor Investing, Tool Updates, Tactical Asset Allocation Research|
The following factor performance modules have been updated on our Index website.
High school financial education courses in the United States
By Elisabetta Basilico, PhD, CFA|August 12th, 2024|Elisabetta Basilico, Financial Planning, Research Insights, Academic Research Insight, Other Insights, Behavioral Finance|
This article provides detailed insights into how high school financial education policies are implemented at the local level.
Overvalued or New Paradigm?
By Larry Swedroe|August 9th, 2024|Predicting Market Returns, Larry Swedroe, Research Insights, Guest Posts, AI and Machine Learning, Other Insights, Behavioral Finance|
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.
Factors and Taxes
By Tommi Johnsen, PhD|August 5th, 2024|Tommi Johnsen, Factor Investing, Research Insights, Academic Research Insight, Guest Posts, Tax Efficient Investing|
As a result of the trading required to capture the [...]
The Value of WallStreetBets Investment Research Recommendations
By Larry Swedroe|August 2nd, 2024|Larry Swedroe, Research Insights, Guest Posts, Other Insights, Behavioral Finance|
Wallstreetbets has become an increasingly prominent source of investment research. Do their recommendations have value?
DIY Trend-Following Allocations: August 2024
By Ryan Kirlin|August 1st, 2024|Index Updates, Research Insights, Tool Updates, Tactical Asset Allocation Research|
Full exposure to domestic equities. Full exposure to international equities. Full exposure to REITs. No exposure to commodities. Partial exposure to intermediate-term bonds.
Transitioning from an ETF to Direct Indexing? Bad Idea.
By Stephanie Lo|July 30th, 2024|Research Insights, Tax Efficient Investing, ETF Investing|
Many investors face the complex decision of whether to transition from a diversified ETF to direct indexing. When is this switch a poor investment choice? My findings suggest that many investors are better off avoiding it. Direct indexing remains attractive even with a decent amount of embedded capital gains, up to approximately 40% of initial investment, for investors in the highest marginal income tax bracket. However, for lower-tax investors with a marginal income tax rate of 22%, ETFs often prove more advantageous: when embedded capital gains exceed 10%, a consumption-focused investor is better off staying in an ETF. While the other benefits and costs of direct indexing are difficult to quantify, my results indicate that it is far from a universal solution. Investors with high embedded gains and lower tax rates should approach direct indexing cautiously.
Transaction costs for asset allocation and foreign exchange markets
By Elisabetta Basilico, PhD, CFA|July 29th, 2024|Transaction Costs, Research Insights, Basilico and Johnsen, Academic Research Insight, Other Insights|
Transaction costs have a first-order effect on the performance of currency portfolios. Proportional costs based on quoted bid–ask spread are relatively small, but when a fund is large, costs due to the trading volume price impact are sizable and quickly erode returns, leaving many popular strategies unprofitable.