Factor Investing: Costs Do Matter

Progress in science comes when experiment contradicts theory. – Richard Feynman One of the tenets of modern portfolio theory is that you cannot generally beat the market after transaction costs. Yet academic researchers have shown that momentum consistently beats the market. Other factors besides momentum have also cast doubt on the efficacy of the efficient…

Trend Following Research

There have been hundreds of research papers on relative strength momentum since the seminal work by Jegadeesh and Titman in 1993. [1] Relative momentum has been shown to work in and out-of-sample within and across most asset classes. Theoretical results have been consistent, persistent, and robust. Research on trend following absolute momentum got a much later start.…

Real Time Factor Performance

According to S&P DJ Indices, 92% of all actively managed stock funds failed to beat their benchmarks over the past 15 years. This should come as no surprise. Similar results were published more than 20 years ago. This information has caused a move away from active stock selection and toward index funds and systematic approaches.…

Factor Zoo or Unicorn Ranch?

According to Morningstar, as of June 2016, the assets in smart beta exchange-traded products totaled $490 billion. BlackRock forecasts smart beta investing using size, value, quality, momentum, and low-volatility factors will reach $1 trillion by 2020 and $2.4 trillion by 2025. This annual growth rate of 19% is double the growth rate of the entire…