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Separating Ingredients and Recipe in Factor Investing
Factor portfolio construction has two key elements: ingredients (the signals used to pick investments) and recipe (the rules used to translate those signals into allocations). While the ingredients often get the most focus, the recipe can have just as large of an impact on returns.
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How to Benchmark Trend-Following
Benchmarking a trend-following strategy is difficult. The tendency is to compare it to an equity strategy, but this often leads to disappointment. We explore a better benchmark that allows investors to accurately measure performance and set expectations.
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Leverage and Trend Following
We typically explore trend following as a risk management technique for investors sensitive to sequence risk, but it may also be a way to allow growth investors to benefit from leverage by reducing the risk of permanent portfolio impairment that would otherwise occur due to large drawdowns.
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The Importance of Diversification in Trend Following
Single-asset trend following strategies can play a meaningful role in investor portfolios, but success requires introducing sources of diversification within the strategy. We believe the increased internal diversification allows not only for a higher probability of success.
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Risk Ignition with Trend Following
Trend following strategies may represent a beneficial diversifier for conservative portfolios going forward, potentially allowing investors to more fully participate with equity market growth without necessarily fully exposing themselves to equity market risk.
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Benchmarking, Behavioral Biases, and the March Madness Tournament Challenge Recap
Our 2018 March Madness challenge is all wrapped up! In this post, we highlight many of the same pitfalls with benchmarking and behavioral biases that we see in investing.
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Failing Slow, Failing Fast, and Failing Very Fast
Failure to meet your financial objectives can take one of two forms: fast failure and slow failure. Failing fast involves suffering large losses at the wrong time as the result of taking too much risk. Failing slow involves achieving insufficient growth due to taking too little risk.
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Diversifying the What, How, and When of Trend Following
Naïve and simple long/flat trend following approaches have demonstrated considerable consistency and success in U.S. equities. We explore how investors can think about introducing greater diversification across the three axes of what, how, and when in effort to build a more robust tactical solution.
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Newfound 2018 March Madness: Final Four Update
Here is the Final Four update for our 2018 March Madness Bracket Challenge. Our rules are not your typical bracket rules; we isolate the skill from the luck! Find out what the next two rounds could have in store for your bracket.
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Protect & Participate: Managing Drawdowns with Trend Following
For investors looking to diversify how they manage risk, we believe the trend following represents a high transparent, and historically effective, alternative.
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Two Centuries of Momentum
As a systematized strategy, momentum sits upon nearly a quarter century of positive academic evidence and a century of successful empirical results.
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Newfound 2018 March Madness: Sweet 16 Update
Our 2018 March Madness bracket challenge is well underway. Let's take a look at the current standings and some trends we are seeing in the field.
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You Are Not a Monte-Carlo Simulation
Our lives are not a monte-carlo simulation. Because we all live in a multi-period world where we have a single investment portfolio that compounds over time, managing risk can help us maximize our long-term growth rate even if it seems foolish in hindsight.
Read more.Newfound's 2018 March Madness Bracket Challenge
Are you tired of March Madness bracket rules that don't adequately reward your true skill? Sign up for Newfound's March Madness 2018 Bracket Challenge to showcase your true selection ability.
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March Madness for Investors
March Madness competitions with non-standard rules have many parallels to investing. Diversification, model development, backtesting, and evaluating assumptions all come into play.
Read more.Thinking in Long/Short Portfolios
While few investors explicitly hold long/short portfolios, every active portfolio can be thought of as the benchmark plus a long/short representing the active bets. We use this framework to distinguish the quantity versus quality of active exposures.
Read more.The Diversification Dangers of DIY Tactical
While DIY Tactical ETF strategies became popular after 2008, we often see implementations that fail to adequately diversify. We outline three ways in which we see this manifest: a failure to diversify what, how, and when.
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RIP XIV
From inception through 12/31/2017, XIV earned over 40% annualized per year since inception. It then lost over 90% of its value in two days. Was XIV an example of Taleb's Turkey or is there a deeper lesson to be learned?
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Should You Dollar-Cost Average?
Dollar-cost averaging (DCA) is often touted as superior to lump sum investing, but there are many scenarios where DCA may be inferior. The market environment and investor behavior both play large roles in the decision of which route to take.
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Three ETF-Based Ways to Leverage Your 60/40 Without Margin
We explore three ETF-Based ways to leverage your 60/40 without margin. We explore high beta ETFs, levered ETFs, and derivative-based ETNs as potential tools and look at the benefits and risks of each approach.
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