Tag Archives: dispersion

Not Melting Yet

Despite the hovering cloud of geopolitical menace as we entered 2019, the U.S. equity market enjoyed an almost seamless rise through the first four months of the year. May’s retreat reacquainted investors with volatility and served as a reminder that the market is near all-time highs, having enjoyed a more or less sustained increase for Read more […]

The Height of the Hurdle

Indexing provides many rewards, including a reduction in volatility. Asset owners should demand higher returns to justify the volatility that active management entails. For managers who put their stock selection skills to the test, it is worth understanding the height of the volatility hurdle in managing a portfolio’s risk/return profile. We can illustrate this by Read more […]

Volatile but Not Necessarily Disastrous

In 2018, the S&P 500 declined for the first time in 10 years. The year’s 4% decline is obviously de minimis compared to 2008’s 37% plunge, though investors may feel it more keenly since the fourth quarter’s 14% decline erased what had been a profitable year.  Nonetheless, the risk landscape changed dramatically in 2018 compared Read more […]

2018 Mid-Year SPIVA® Canada Scorecard – Challenging Times for Active Equity Managers

The latest Canada SPIVA® scorecard landed recently.  While data up to the end of June 2018 was consistent with results from previous SPIVA Canada scorecards – active management once again found it challenging to beat the passive benchmarks – there were pockets of success.  Here are a few highlights. Active managers found it difficult to Read more […]

Valuing Research: Three Questions

We recently introduced a new measure, capacity-adjusted dispersion, to help conceptualize the relative value of research across different markets.  Intuitively, capacity-adjusted dispersion combines the potential opportunity for outperformance (dispersion) and the potential size of active positions (capitalization) in a given market.  Exhibit 1 shows the capacity-adjusted figures for several markets, globally.  All else being equal, Read more […]

The Value of Research: Combining Capacity & Opportunity

How much should a portfolio manager be willing to pay for research?  This is a question any manager has to answer, but it has recently become more pertinent as newly imposed European rules require the costs of investment research to be unbundled from trading.  Here is a brief overview of a stylized framework for estimating Read more […]

Surprising but Explainable

Equal-weight indices have a small-cap tilt. Therefore, one might naturally assume that the volatility of equal-weight indices is higher than that of their cap-weighted counterparts. Surprisingly, this is not always the case, and we can understand why using the lens of dispersion and correlation. Exhibit 1 shows that the volatility of the S&P 500® Equal Read more […]

Breaking Down Volatility

“Data! Data! Data!” he cried impatiently. “I can’t make bricks without clay.” – Sherlock Holmes (in “The Adventure of the Copper Beeches”) Despite yesterday’s hand wringing loss for equity markets— the S&P 500 dropped 3.3%—the index is still up 5.8% year to date 2018. Nevertheless, losing in one day a third of what the equity market Read more […]

Juxtaposition and Paradox

Effective prior to the market open on Sept. 24, 2018, the Telecommunication Services sector will be replaced with a new Communication Services sector, which will combine telecom with parts of the Information Technology and Consumer Discretionary sectors. As a result, Telecom, the ugly duckling sector comprising three stodgy telephone companies, will now be joined by Read more […]

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 […]