Most of us learned long ago that diversification is a good thing. In fact, it is often called the closest thing to a “free lunch” in the world of investing. This is because, when used wisely, diversification can reduce portfolio volatility with little or no diminution in return. But the key is “when used wisely.”…
Dead or dying academic ideas latched on to by unwary institutional investors litter the investment graveyard landscape. My new book, Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk, describes some of these, such as portfolio insurance, small-cap premium, and portfolio diversification with passive commodities. Most of these occurred because of incomplete information…
Researchers estimate that the worldwide cost of investment management is approximately $3 trillion per year. Some of this expense is unavoidable, such as the costs associated with custodial fees and for the periodic rebalancing of portfolios. However, most of this high expense is in the form of compensation paid to the managers of actively managed…
Most academic research on momentum deals with individual stocks. Most applications of momentum are also oriented toward individual stocks. The three largest momentum programs (AQR momentum mutual funds, PowerShares DWA Momentum ETFs, and iShares MSCI USA Momentum Factor ETF) all use individual stock momentum. The only public program using momentum applied to asset classes was…
The AQR posse (Asness, Frazzini, Israel, and Moskowitz) recently issued a working paper that disproves many often-repeated myths about momentum investing, particularly as it applies to individual stocks. The authors back up their reasoning with results from academic papers and publicly available data. Here are the myths they address: The momentum anomaly is small and sporadic ·It…
I feature Global Equities Momentum (GEM) in my forthcoming book, so it is time to introduce it on our website. GEM is a simple but powerful model that switches between the S&P 500 Index, the MSCI All Country World Index ex-US, and the Barclays Capital US Aggregate Bond Index based on dual momentum. GEM is long…