Ken French’s recently updated global factor data shows the global size and value premiums were basically flat for the past 10 years (the value premium was actually about –1 percent per year over this span). This long-term historical result has surprised many people and naturally led some to ask whether these premiums can be expected…
It’s becoming clear that the price for overall U.S. equity market exposure is close to zero. Many market-cap weighted index funds and exchange-traded funds from Vanguard and others are charging expense ratios of five basis points (bps) or less. An interesting, and more difficult, question to answer: How much are you paying to gain exposure…
Over the past few months, the difference in historical performance between DFA Small Value (ticker: DFSVX) and Vanguard Small Value (VISVX) has narrowed. For example, for the 10-year period ending December 2014, the compound annual return of DFSVX was 7.9 percent while VISVX earned 8.3 percent. Comparatively, for the 10-year period ending December 2012, compound…
Overview: With expected inflation rates very low, there will be significant attention on the possibility of deflation causing the stock market to fall. This blog examines the relationship between the rate of inflation and stock and bond returns. Generally, the research shows that stock returns are no lower in deflationary environments than in normal inflationary…
Watch the video on Multifactor World.
Last year, a piece by Michael Kitces and Wade Pfau made the claim that mechanically increasing the equity allocation during retirement — which they term a “rising glidepath” — could reduce the likelihood that a retiree outlives his or her assets and could decrease the magnitude of shortfall when capital market returns disappoint. Specifically, the…
There have been a number of articles over the past few years claiming to refute the existence of a small-cap (or size) premium, which is the historical difference in returns between small-cap stocks and large-cap stocks. While the critiques have been somewhat varied, two common claims are that the risk-adjusted returns of small-cap stocks have…
I have long been skeptical of how fair bond fund prices are — or more accurately said, the potential ability for knowledgeable investors to “game” bond fund prices — in fixed income asset classes where liquidity isn’t great. Two asset classes that immediately come to mind are municipal bonds and high-yield corporate bonds. I finally…
The financial media are full of conjecture about which strategies might effectively hedge inflation risk or not. Here we explore which asset classes, if any, have been effective at protecting against inflation risk. First, it is helpful to address some common logical and analytical misconceptions about hedging inflation risk. Focus on Correlation, Not Volatility When…
I have received a number of questions since “60 Minutes” ran a piece on high-frequency trading (HFT)on March 30 (lest we forget, this is the same “60 Minutes” that ran a piece in 2010 that predicted the municipal market would implode in 2011, and we all know how that turned out). I’ll summarize what I think…
I frequently get asked about the merits of corporate bonds, both investment-grade (IG) and high-yield (HY), relative to government and municipal bonds. I don’t believe the risk-return profile for long-term investors (particularly taxable individual investors) is improved by owning IG or HY corporate bonds compared with simply owning a diversified portfolio of stocks and high-quality…
In this video blog, I walk through an example of how I responded to a prospective client who was interested in investing in hedge funds that looked particularly enticing based on their marketing collateral.