Is Active Management Skilled? If So, Who Benefits?
According to Christian mythology, the Holy Grail was the dish, plate or cup with miraculous powers that were used by Jesus at the Last Supper. Legend has it that the Grail was sent to Great [...]
Deconstructing the Low Volatility/Low Beta Anomaly
One of the big problems for the first formal asset pricing model developed by financial economists, the Capital Asset Pricing Model (CAPM), was that it predicts a positive relationship between risk and return. However, the [...]
Explaining the Beta Anomaly
The superior performance of low-beta and low-volatility stocks was documented in the literature back in the 1970s — by Fischer Black (in 1972) among others — even before the size and value premiums were “discovered.” [...]
Sharpening the Arithmetic of Active Management
For many investors, the superiority of passive investing over active investing is axiomatic (Earth to passive investors; Lunch is never free!) And why not? Study after study has demonstrated that only a small portion of [...]
Investor Attention and the Low Volatility Anomaly
One of the big problems for the first formal asset pricing model developed by financial economists, the Capital Asset Pricing Model (CAPM), was that it predicts a positive relationship between risk and return. However, the [...]
Explaining the Demand for Higher Beta Stocks
The Capital Asset Pricing Model (CAPM) indicates returns should go up linearly as beta increases (in other words, risk and return are positively related). However, as I’ve previously discussed, the historical evidence demonstrates that, while [...]
Are Long/Short Equity Strategies Worth the Fees?
High net worth individuals, university endowments, and public pension funds have heavily invested in long/short equity hedge funds. But is the long/short equity asset class benefiting investors? The pitfalls of expensive financial products are well [...]
ETF Product Development: Past, Present, and Future
On October 1st, 1908 Henry Ford introduced the Model T to the world. The power of the Model T was that it democratized the automobile so the average working-class person could afford a car for [...]
Assessing the Potential Market Impact of Passive, Short-volatility, and Low-volatility Strategies
The market has recently experienced record low levels of realized volatility and the VIX™ (volatility index) has fallen to historic lows. Moreover, the incredibly popular FAAMG stocks[ref]FAAMG is an abbreviation referring to the stocks of [...]
Active Share: Does it Predict Fund Performance?
The Holy Grail for mutual fund investors is the ability to identify in advance, which of the active mutual funds (or ETFs nowadays) will outperform in the future. The evidence suggests this task is almost [...]
“Passive” Investing: Theory and Practice in a Global Market
Purely passive investing is theoretically plausible, but practically impossible. That said, the practical implementations can often be "good enough." As a theoretical index investor, you deploy capital, take a long snooze, and wake up some day [...]
Trust, but Verify: The Potential Problems of Blind Investing
Nobody can predict the future, but there is a chance the blind purchase of broad-index portfolios will come to an abrupt and potentially chaotic end when the music finally stops. This argument is the thesis of this blog post. [...]
Chinese Market Anomalies – The Factor Killer?
The Oracle of Omaha just commented on the Chinese stock market in this year's Berkshire's annual meeting: ...Markets have a casino characteristic that has a lot of appeal to people, particularly when they see people [...]
Rebalance Your Portfolio? You are a Market Timer and Here’s What to Consider
In this piece I examine various way in which an investor can think about their active market timing decisions, often labeled with the innocuous term "rebalancing." Rebalancing a portfolio is the finance version of "eat [...]
Active Managers Should Love Passive Investing–It Makes Them Better!
Blaming the disappointing performance of active management on the exponential growth of passive indexing (defined here) is not a new idea. However, a recently published paper in the Journal of Financial Economics,(3) provides a new and notable take on the continuing debate. In a surprising turnabout to Mr. Odey’s comment, the authors of the article find that actively managed funds are more “active”, charge lower fees, and produce higher alpha, when faced with more competitive pressure from low-cost passive index funds.
Active Versus Passive Investing: Can we End the Confusion?
I've noticed something profound the past few years: depending on your audience, the definition of active investing and passive investing is different. To a financial journalist, active means "human stock-picker," and passive means "computer stock-picker." [...]
Greatest Stock Picker of All Time: Buffett or Lynch?
Who is the greatest stock picker of all time? Many investors knee-jerk reaction is Warren Buffett. Understandable response, but is that the answer? Maybe not... So who is the greatest investor of all time? A few years [...]
Active Versus Passive for the US and the Canadian Markets
We all hear about the massive move away from active to passive in the US market. We also hear arguments that passive may eat the world and that active management is a zero sum game [...]
Treasury Bills Outperform Most Stocks — Say What???
Each morning we peruse a variety of research sites to see if there is anything exciting, new, and intriguing. Rarely does one find something that triggers a knee-jerk reaction like a recent paper by Hendrik [...]
Active Fee Over Time: Retail and Institutional Trends Over Time
We've been focused on understanding how to communicate the concept of active fee to the broader investment community. Active fee is an important concept because it helps investors make more informed and educated decisions -- a [...]