Dollar-Cost Averaging: Improved by Trend?
The choice to lump sum invest (β€œLSI”) or dollar-cost average (β€œDCA”) is one fraught with emotion. Intuition tells us that LSI likely offers the best bet for long-term investors as markets, in general, tend to go up. However, can signals derived from simple trend models offer an edge?
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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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Diversifying the What, How, and When of Trend Following
NaΓ―ve 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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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 evidenceΒ and a century of successful empirical results.
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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.
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Timing Bonds with Value, Momentum, and Carry
With low current rates and higher durations, the stage may be set for systematic, factor-based approaches to timing bonds – like value, momentum, and carry – to add significant value to passive buy-and-hold.
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Factor Investing & The Bets You Didn’t Mean to Make
Factor-based investment strategies seek to manage risk with diversification; completely unconstrained, however, they can be overwhelmed by unintended bets.
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Value 2.0
Traditional value strategies may be fundamentally flawed in their construction. Value 2.0 indices fix some of these problems, but not all.
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Are Market Implied Probabilities Useful?
Market-implied probabilities may apply for "typical households", but actual probabilities are more relevant to the unique goals and situations of investors.
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A Case Against Overweighting International Equity
Are relative valuations a good enough reason to overweight international equity exposure compared to U.S. equity exposure?
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The Frustrating Law of Active Management
We introduce the Frustrating Law of Active Management: For a strategy to outperform in the long run, it has to underperform in the short run.
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A Gentle Guide to Global Tactical Asset Allocation
An introduction to global tactical asset allocation ("GTAA") using systematic styles like value, momentum, carry, defensive and trend.
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Duration Timing with Style Premia
Can value, momentum, carry, and an explicit measure of the bond risk premium be used as methods for timing duration in a fixed income portfolio?
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Factors & Financial Planning
Factors are often discussed as a means to potential enhance portfolio return; but how should factors be combined when portfolio goals are considered?
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Do Factors Market Time?
Traditional academic equity factors exhibit time-varying beta exposure. Does this varying exposure imply returns from "market timing"?
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