Tag Archives: index performance

Sep 21, 2020

Sectors and Electors

Markets expect elevated volatility surrounding the U.S. Presidential election, now just six weeks away. The VIX futures curve currently peaks in November, but as long ago as April a close observer could detect expectations of electoral volatility. Increased volatility may create an unusual opportunity for sector allocators. To understand why, we need to remember that…

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Sep 15, 2020

Courage vs. Comfort

Philosophers have long argued that courage is the most essential human virtue, because without courage, all other virtues lie in jeopardy. Remarkably, the theorizing of ethicists has an implication for practical portfolio management. We can illustrate this with a simple example in Exhibit 1. It’s Dec. 31, 1999, and a professional investor is considering buying…

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Jun 18, 2020

Not that wrong

Stock markets continue to rally globally, ascending a wall of poor economic data and significant negative sentiment.  Concern that current price levels are unjustifiable is widespread: 78% of respondents to the most recent Bank of America Global Fund Manager Survey believe that the market is overpriced, the highest level since the survey began in 1998. …

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May 12, 2020

Factors and Factor Indices

There is a subtle but important distinction between factors and factor indices.  “Factor” denotes an attribute with which long-term excess returns are thought to be associated.  Fama and French, for instance, famously found that small size and cheap valuation were factors in this sense.  A number of other variables – prominently including momentum, low volatility,…

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Apr 28, 2020

Two Sides of Volatility

I was recently asked whether volatility was particularly challenging for index fund owners or for active investors.  The answer is “yes.” For index funds, the challenge arises because rising volatility typically accompanies poor returns.  Between 1991 and 2019, e.g., months in which the S&P 500’s volatility was above median averaged modestly negative total returns.  In…

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Apr 24, 2020

The Defensive Advantage

A wise man told me years ago that there are some things you can’t get if you go after them directly.  If you’ve ever watched someone trying to sound interesting, you’ll realize the truth of my friend’s observation.  There are plenty of interesting people out there, of course, but they achieve that status by pursuing…

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Apr 16, 2020

Performance Trickery, part 3

Success is hard to come by for active managers, as readers of our SPIVA reports know well.  Sometimes what appears to be stock selection skill is in fact simply a byproduct of style drift across the capitalization scale. A majority of large-cap active managers outperformed the S&P 500 only 3 times in 19 years of…

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Mar 17, 2020

Equity Liquidity at a Reasonable Price

The fall in equity market values since February’s peak has been sudden and dramatic.  During this period, the equity markets have functioned well at their primary task of facilitating price discovery at a time when values were changing rapidly.  Equity investors who wanted to trade have been able to trade.  (Whether they were wise to…

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Mar 10, 2020

Cushioning the Decline

With the S&P 500 down -14.7% for calendar 2020, and -18.8% since its peak in late February, investors are rightly concerned to identify strategies that might help to mitigate the ongoing decline.  A number of defensive factor indices have performed relatively well in March, but the leader for the year so far is S&P 500…

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Feb 25, 2020

The Most Dangerous Words

The four most dangerous words in investing are “This time it’s different.”  –  Sir John Templeton As investors ponder the ultimate extent of the coronavirus epidemic, this week’s equity market declines are of natural concern to every asset owner.  The obvious question, after near-record point drops in major indices yesterday and today, is how much…

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