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- čas přidán 6. 07. 2024
- In today’s episode, we beg the question: is factor investing worth it? Factor-tilted portfolios tend to perform independently of the market and today, we break down a few of the characteristics associated with higher expected returns, as well as the challenges of factor investing. We give a brief history of pricing models and walk step-by-step through a hypothetical factor investment; taking the Fama and French five-factor model into account. Additionally, we discuss liability duration and bond returns and speculate whether pooling finances results in greater relationship satisfaction. Tune in to hear our take on everything from book clubs and the impact of inflation on consumption liability assumptions to our final verdict on whether factor investing is, in fact, worth your while.
Timestamps:
0:00 Intro
4:37 Discussion on Cam Harvey's Crypto Ep.
10:23 Reviews
21:56 Cameron's Book Recommendation
29:19 Pooling Finances and Relationship Satisfaction
31:34 Liability Duration and Recent Bond Returns
39:12 Is Factor Investing Worth It?
Participate in our Community Discussion about this Episode:
community.rationalreminder.ca...
Book From Today’s Episode:
Way of the Warrior Kid 3: Where there's a Will... - amzn.to/3zJN6gy
Links From Today’s Episode:
Rational Reminder on iTunes - itunes.apple.com/ca/podcast/t....
Rational Reminder Website - rationalreminder.ca/
Shop Merch - shop.rationalreminder.ca/
Join the Community - community.rationalreminder.ca/
Follow us on Twitter - / rationalremind
Follow us on Instagram - @rationalreminder
Benjamin on Twitter - / benjaminwfelix
Cameron on Twitter - / cameronpassmore
'Podcast Guests Are Paying Up to $50,000 to Appear on Popular Shows' - www.bloomberg.com/news/articl...
'Pooling Finances and Relationship Satisfaction' - static1.squarespace.com/stati...
'Canadian pension plans see improved financial health, despite volatile markets' - www.theglobeandmail.com/busin...
'Size matters, if you control your junk' - www.sciencedirect.com/science....
'Settling the Size Matter' - jpm.pm-research.com/content/e...
'A Wealth Management Perspective on Factor Premia and the Value of Downside Protection' - jpm.pm-research.com/content/4...
'Volatility Lessons' - www.cfainstitute.org/en/resea...
'Model Comparison with Transaction Costs' - papers.ssrn.com/sol3/papers.c...
'Is There a Replication Crisis in Finance?' - papers.ssrn.com/sol3/papers.c...
'Does Academic Research Destroy Stock Return Predictability?' - onlinelibrary.wiley.com/doi/1...
'Which Alpha?' - academic.oup.com/rfs/article-...
'Choosing factors' - www.sciencedirect.com/science... - Jak na to + styl
It probably goes without saying, but your opening is part of why I listen to your show. Keep up the great work and thank you!
I would like to suggest as guests to have PWL Capital Portfolio Managers from your offices across Canada. You have so many great PM which have good experiences to share with your audience.
Can you ask the former CIO of vanguard , how they ensure their active funds don't take advantage of their own passive funds? Seems that if their was an active manager in Vanguard, they would have inside knowledge of trades that they could take advantage of.
I remember Rick Ferri made the comment that if you're going to do factor investing you have to be in it forever ie decades because you have to be there to pick up the gains. But you can never know when it's going to come. Another commentator Robert Wigglesworth says that a strategy that relies on you hanging on for dear life until the other guy doing factors gives up is not a strategy that most people can do. You're better off just doing market cap. If the gains is only worth 0.4% after costs that's alot of work and then you do need the decades to make it worthwhile doing it? Very daunting.
I'm in Australia and use Avantis ETF's which are domiciled in the U.S so I'm going to lose out on tax drag with the non U.S ETF's. I just wonder if that sucks up the 0.4% premium? I guess at worse I'll just get the market return??
Thanks Felix for your work.
I find it helpful to consider that it's not just about the higher expected returns. It also provides a more reliable outcome due to the uncorrelated nature of the factor premiums.
The factors and global diversification give greater protection against past examples such as the 'lost decade' in the early 2000s for the US and also the stagnation of Japan.
@@bradleystoldt318 That's very much the way I view it. As they said, even though a MCW portfolio is more likely to under-perform a factor-slanted portfolio, most investors seem more willing to accept MCW under-performance. This seems to be because most factor investors expect to be rewarded for taking more risk, so under-performance is more painful.
Thanks for great episode!
Regarding the comment on the basic read for inexperienced people. I started listening to this podcast as totally financially illiterate and took a lot of notes. Do you want me to revisit them and make an introductory booklet for the more basic stuff?
If you choose to do that, I am sure it would be of tremendous value to the community of RR listeners new and old. We could make it a Wiki post in the RR community.
-Ben
only doing a value tilt for more diversification and protection against deep left tail risk
Ben, slightly related question: do etf returns we can see in Apple Stocks, Google stocks include fixed income payouts (assuming they are 100% reinvested) or do I need to do the math ?
No, all the stock trackers only show the price and do not account for payouts (unless the ETF automatically reinvests dividends (accumulating fund), which is different). You will need to go to the website/fact sheet and sometimes it will show you "total return" number or a "growth of $1000" graph which will include the payouts. If you want over a very specific time frame, then you will have to grab the data and do the math. For some indices you can find total return calculators online. Lastly, if you want a quick estimate, you can assume the dividend yield doesn't change much and just add that to a return.
@@supernumex thank you!
🐐🐐
I'm trying to figure out how XBB has a duration of 7.67 years, when the actual duration of the bonds in that ETF span from 0-5 years to over 20 years?
It's a weighted duration. Averaged by the weights of the different bonds held by the fund.
@@Kralnor The weights of the bonds in XBB are 50% over 7 years.
Hi guys amazing job as usual. Is there any video where you explain why you have decided to drop the small cap value from your portfolio allocation?
How come the CZcams episodes are always a few minutes longer than on Spotify?
Editing for pauses and filler words (uh etc.) is more aggressive in the audio version.
Video is processed slower than audio by the brain
Just for control, can you bring some non-trolling one star reviews?
We read all reviews.
Shiny new title cards
Silly question what is the point of factor investment if returns are more volatile than sp500? Is not value and stability 2 of the factors used to pick stocks?
Stability is not always a good metric that supports returns. Risk theoretically determines expected returns.
Small cap value has higher expected returns BECAUSE of the expected risk and volatility. (There are other metrics like profitability that also have an effect, but most of it is pretty well theoretically explained by risk premiums)
@@ChaoticScaper I understand that, potentially I am confusing factor with multifactor investing, like one of the latest vanguard actively managed etf. I understand the theory there is not aim always for the stocks with (example) higher momentum but consider globally the market to see if a value based approach needs to be considered instead. In that case a more stable less volatile selection, if made during recessions or bull markets, will result in lower volatility and higher returns.
Up and it down it goes like the price of coke! 😆😆😆
When im doing dca in an index, i have accepted that i know nothing. Hence stock picking n factor picking is definitely not for me
But there is evidence stocks with a low-price relative to economic fundamentals are likely to have higher returns. To me that's not the same as picking individual stocks.
you'll be fine doing this
All stocks are factor stocks, just different factors