Category Archives: Smart Beta

How Low Volatility Could Make You “King of the Mountains”

The world’s most prestigious cycling race, the Tour de France, begins tomorrow.  The tour lasts three weeks and comprises a series of one-day stages.  Although the main prize – the yellow jersey – is awarded to the rider that takes the minimum amount of time to complete the entire tour, there are plenty of races Read more […]

Can small-cap outperformance continue?

Small caps have materially outperformed large caps in 2018, with the S&P SmallCap 600 outpacing the S&P 500 7.80% to 2.58% between Dec. 29, 2017, and May 25, 2018.1 Below, I highlight what I believe to be the drivers of small-cap returns this year, and why I believe the trend could continue. Tax cuts have Read more […]

Low Volatility Rate Response – Down-Market Analysis

In the second blog of this series, we saw that the S&P 500® Low Volatility Rate Response generally achieved similar levels of volatility reduction as the S&P 500 Low Volatility Index. In our paper Inside Low Volatility Indices (published in 2016), the low volatility index historically outperformed the S&P 500 during severe market downturns (Exhibit Read more […]

Low Volatility Rate Response – Interest Rate Changes and Relative Performance

In a prior post, we saw that during sharp rising interest rate periods, the S&P 500® Low Volatility Rate Response fared better than the S&P 500 Low Volatility Index, even though both indices generally underperformed the S&P 500. In this post, we examine if there is a relationship between the magnitude of interest rate changes Read more […]

Introducing the U.S. S&P Select Industry Dashboard

We recently launched the monthly U.S. S&P Select Industry Dashboard, which provides key metrics, analysis of correlation and dispersion, and historical risk/return data for 20 investable select industry indices. The dashboard is a natural extension of our U.S. Select Sector Dashboard, which provides analysis for investable sectors across the large-, mid-, and small-cap ranges. For Read more […]

Assessing the Potential of Value Factors in the Indian Market

The value factor looks to bucket stocks that have inexpensive valuation and trade at a discount to their fundamental value, with the hypothesis that inexpensive stocks should outperform overvalued stocks. Observations in empirical research suggested that the value factor performed best when the economy was in recovery and growth was accelerating from trough.[1] We recently Read more […]

Momentum’s Minsky Moment?

U.S. equity funds following momentum (or relative strength) strategies have generally performed well recently, and their performance has been rewarded with inflows.  This is important because momentum, uniquely among investment styles, is self-reinforcing – until it isn’t. Typically, as factors become more popular, their excess returns are likely to diminish.  For example: the more value Read more […]

Integrating Carbon Risk With the Quality Factor

In a prior blog, we demonstrated that a sector-relative, carbon-efficient portfolio was superior to a sector-unconstrained one when forming low-carbon portfolios. In this blog, we explore the integration of carbon risk in quality factor portfolios. High-quality companies seek to generate higher profitability and enjoy more stable growth than “average” companies. Equally important, high-quality companies seek Read more […]

Maintaining Risk Reduction While Reducing Interest Rate Risk

Previously, we highlighted that the S&P 500® Low Volatility Rate Response Index fared better than the S&P 500 Low Volatility Index when interest rates increased. The objective of low volatility portfolios is to deliver lower portfolio volatility than the broad market benchmark, leading to higher risk-adjusted returns over a long-term investment horizon. In this blog, Read more […]

Reducing Interest Rate Risk in a Low Volatility Strategy

In prior posts, we reviewed the impact of rising interest rates on the S&P 500® Low Volatility Index returns. We showed that the low volatility index had negative exposure to rising interest rates, and thus has historically underperformed the S&P 500 in periods when interest rates rose significantly. In this post, we look at the Read more […]