In politics, “regime change” denotes the replacement of one governmental structure with another; in economics, we use the same term to indicate a shift in the interactions of various parts of the economic or financial system. Political regime changes are easy to identify (after all, a military coup is hard to miss). Defining when an…
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Sectors and factors are different ways of viewing the world, but they are not mutually exclusive. We find an example of such a close, symbiotic relationship between the technology sector and the quality factor. Exhibit 1 shows that the S&P 500 Information Technology index has a strong tilt towards quality, while the biggest overweight in…
Do the S&P 500 High Yield Dividend Aristocrats provide durability during times of distress? S&P DJI’s Anu Ganti explains how dividend growers are positioned for the current climate.
In a previous blog, we took the first and second steps in our Growth at a Reasonable Price (GARP) strategy construction. We introduced the GARP investment strategy and showed how it can be implemented systematically. In this blog, we will take the third and fourth steps: using a multi-factor sequential filtering process for security selection…
In this blog (and three subsequent posts) we will explore using Growth at a Reasonable Price (GARP) principles for investment in indices. GARP is a well-known, much-practiced, fundamental-driven investment strategy. It seeks to balance between the pure growth strategy and pure valuation strategy, as the former tends to chase high growth yet expensive stocks, while…
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…
Consider this thought experiment: You “know” that 499 of the companies in the S&P 500® will return exactly 5% next year. One will return 100%. You have no way to determine which stock will be the big winner, or to know or infer anything about its characteristics. You can invest in either a cap-weighted S&P…
In the last year, plain old beta performed remarkably well in comparison to the so-called “smart” alternatives tracking large-cap U.S. equities. Of the 17 different strategies reported in our year-end factor dashboard, less than a third outperformed the S&P 500’s total return of 21.83% over the last 12 months. When they are criticized as the…
As this week’s award of the Nobel Prize in Economics to Richard Thaler confirmed, the existence of behavioral biases in finance is no longer a controversial theory. People often prefer a small chance of a large gain to a near-certain chance of a small gain, even if the expected return from the latter is higher. …
Equal-weighted indices typically outperform their cap-weighted counterparts (although 2017 so far has proven to be an exception to the general rule). This means that portfolio managers can usually create a performance tailwind by equal weighting rather than cap weighting their holdings. But do they? One way to assess this question is by using the Herfindahl-Hirschman…
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