Resources

Looser Regulation Harms Pension Returns

ETF

Defined benefit (DB) pension funds promise retirement benefits dependent upon an employee’s earnings history, tenure of service and age. When a DB pension fund is underfunded (when asset values are lower than the value of their liabilities, or the promised pension benefits), conflicts of interest can arise. This conflict can occur because a reported funding…

Fama and Booth Weigh In On Brexit

Huffington Post

When news of the Brexit vote broke, the financial media went into an overdrive of speculation bordering on hysteria. There was much talk about potentially devastating scenarios, including “turmoil“ to global markets. One investment “pro” counseled investors against buying stocks because “the Brexit selling is not over.” Read the rest of the article at The…

Breaking Down REIT Prices

ETF

As with all financial assets, real estate investment trust (REIT) valuations should equal the discounted present value of expected future cash flows. REIT prices thus reflect the growth potential of cash flow (rents, expenses) and/or the time variation in expected returns (interest rates and risk premium, which is the discount rate). Given currently low yields…

When Board Members Hurt Returns

ETF

The investment policies of state and local government pension systems have shifted markedly in recent years toward alternative investment classes, such as private equity, real estate and venture capital. For example, as of January 2016, the California Public Employees’ Retirement System (or CalPERS) had almost 20% of its $276 billion portfolio invested in these asset…

How to Avoid Letting Money Destroy Your Relationships

Money destroys relationships because people can’t compete with money. Money, after all, doesn’t disappoint you, or express disappointment with you. It’s not that money is inherently bad or evil, but it’s not inherently good or righteous either. Money is simply a neutral tool that can be used well or poorly. It only has the value—the personality…

Consider Factors In Fixed Income

ETF

It’s been well-documented that, in equity investing, assets have earned premiums because they are exposed to the risks of a certain factor. Given that the literature provides us with a veritable factor “zoo” (there are more than 300), for investors to consider adding exposure to a factor, it should meet the following criteria: Persistent: It…

What Is The Profitability Premium?

ETF

Robert Novy-Marx’s 2012 paper, “The Other Side of Value: The Gross Profitability Premium,” not only provided investors with new insights into the cross section of stock returns, it helped explain Warren Buffett’s superior performance—he bought value companies with higher profitability metrics. Key Findings About Profitability Novy-Marx’s study, which covered the period 1962 through 2010, used…

When False Factors Are Exposed

ETF

The world of finance and asset pricing used to be fairly simple. At first, there was just the single-factor capital asset pricing model, with market risk (beta) as the sole factor to explain the differences in returns of diversified portfolios. Over time, the working model evolved into a still relatively simple four-factor model, adding value,…

Pension Funds Turn In Vain To Hedge Funds

ETF

Hit by a “perfect storm” that combined a decade (2000-2009) in which the S&P 500 lost about 1% a year with a rising tide of pension obligations, public workers’ pension funds across the country increasingly began turning to riskier alternative investments (such as hedge funds) in an effort to boost returns and close the gaps…

A New Factor-Based Approach to Classifying and Measuring the Performance of SRI Mutual Funds

As I’ve written about before, the goal of sustainable, or socially responsible, investing (SRI) can be characterized as “doing well by doing good.” The implication of such double-bottom-line investing is that you are seeking not only profitable investments, but also investments that meet your personal standards. SRI has gained a lot of traction in portfolio management in recent…

A Culture That Encourages Misconduct?

Huffington Post

When I started writing books about a decade ago, I took the position that no one should rely on a broker for financial advice. My reasoning was simple. I had never met a broker who recommended a globally diversified portfolio consisting solely of low-management-fee index funds, exchange-traded funds or passively managed funds. It was my…

Mispricing Underlies Profitability Premium

ETF

It has been well-documented that profitability is positively correlated with stock returns—firms with higher profits earn higher returns. The question that we will ask today about the profitability premium relates to its source: Is it based on risk? Or, is it an anomaly that results from persistent pricing errors? F.Y. Eric Lam, Shujing Wang and…

How Our Fears About Money Could Swing the 2016 Election

New York Times

I’m getting more questions about what this election will mean for people’s personal financial situations than I’ve received in any previous election that I can remember. Financial advisers almost twice my age tell me the same thing. While I’m sure there are many reasons for these questions, I submit that the primary one is this:…

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