Show #15: Which risk factors are the most important? скачать в хорошем качестве

Show #15: Which risk factors are the most important?

Helping clients make smart financial decisions - http://www.intwealthmgt.com This show explains why it is difficult for an investor to identify the factors that are worth investing in. This video is intended to provide general information only, and it should not be construed as an offer of specifically tailored individualized advice. -- Connect with Integrated Wealth Management -- Follow us on Twitter: https://goo.gl/3YIg3g and on LinkedIn: https://goo.gl/8rH3jx Like us on Facebook: https://goo.gl/nGkAXV -Transcript- RP: Hello there. Investors in traditional index funds are effectively investing in entire markets. They’re simply capturing market returns, sometimes known as beta. But there’s evidence to show that by exposing their portfolios to specific risk factors, investors can and do beat the market over the long term. A leading authority on so-called factor investing is Larry Swedroe. LS: Factors are nothing more than a characteristic a trade or a style of investing that can be expressed even across asset classes. So, you could buy value, which is buying what’s cheap in stocks, bonds, commodities or even currencies. The problem for investors today is, that in the academic literature, over 600 factors have been discovered, so many, that John Cochrane called it a zoo of factors. So, how is an investor to know which of the 600 are worth investing in? RP: In a book co-written with Andrew Berkin, called The Complete Guide to Factor-Based Investing, Larry Swedroe reveals which the most important factors are. The authors set out different criteria. Factors needed to be robust and persistent over time, for example. They also had to be pervasive across different geographical regions. They actually found just eight factors that met all the relevant criteria. LS: The ones that we looked at that passed all of our criteria - and we present the evidence from the academic literature, we cited 106 papers: market-beta - obviously, size - meaning the small-cap stocks outperform over the long-term, value, momentum, profitability and quality, something that’s called the “carry trade” and last is the term-premium. We throw out the rest. RP: This is a big and complex subject, which you don’t need to know about in any great detail. Suffice it to say, the most important equity risk factors are size and value.Certainly, size and value funds have become increasingly popular. So, is that a problem for factor investors? In other words, do the premiums start to disappear as more people choose to gain exposure to them? LS: There’s actually pretty good literature now on this, that for the factors that have been identified, many of them do disappear but on average they shrink about 1/3. So, money does come in and if you buy the cheap stocks, you push their prices up you push down by shorting or avoiding the overvalued stocks if you will. The spread between them narrows and then the premium obviously would shrink. RP: One final word of caution. Yes, factors such as size and value do tend to outperform over the long term. But factor investors can go for many years without seeing any benefit over and above traditional indexing. So you do need to be patient. Thanks for watching. Goodbye. -- 1. Historical performance is not indicator of future results. The investment return will fluctuate with market conditions. 2. Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas like all predictors of future events cannot be guaranteed to be accurate and may result in economic loss to the investor. 3. This video is intended to provide general information only, and it should not be construed as an offer of specifically tailored individualized advice. 4. Any information provided by advisor regarding historical market performance is for illustrative and education purposes only. Clients or prospective clients should not assume that their performance will equal or exceed historical market results and/or averages. 5. Advisor does not make any representations or warranties as to the accuracy, timeliness suitability, completeness or relevance of any information prepared by any affiliated third party whether linked to advisor's website or incorporated herein, and it takes no responsibility therefore. All such information is provided solely for convenience purposes only, and all users thereof should be guided accordingly.