Mean Reversion and Bond ETF Returns
The fixed coupon and maturity of bonds act live gravity, causing mean reversion in returns. Short-term underperformance might suggest a positive forecast.
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Momentum’s Magic Number
The performance of momentum strategies appears to peak when the formation period plus the holding period sum to between 12 and 18 months.
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The Raw Materials for Active Management
Explaining why active management performs a certain way in an environment is tough. Predicting this difference is even harder. Diversification is key.
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Inferring the Statistics of Buffett’s Alpha
What investors should take away from Buffett’s alpha is that discipline was crucial for realizing the long-term outperformance.
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A Season for Sectors
Seasonality has proven to be a significant anomaly in a variety of markets. We test whether seasonality applies with sector-based investing and find that not only has the premium been economically significant, but is un-explained by traditional anomalies.
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Dollar-Cost Averaging: Improved by Trend?
Many investors often ask whether they are better off dollar-cost averaging or lump-sum investing; we find that trend following may be a happy medium.
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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
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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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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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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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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