Small-Caps are on the Upswing

After a brief post-election surge at the end of 2016, small-caps “went nowhere” for nine months, but the asset class has “finally decided to join the party,” writes Ben Carlson of Ritholtz Wealth Management in a recent Bloomberg article. “Although 2013 was a breakout year for small-cap stocks,” writes Carlson, “there have been a steady number of all-time highs in the ensuing years.” Since small-caps can be volatile, this could be a sign that investors are pivoting to riskier stocks (historically, he points out, small-cap stocks exhibit 20 percent higher volatility than large-caps). Carlson says that, “One of the biggest […]

Warren Buffett’s Strategy Based on Market Anomalies

Part of Warren Buffett’s fortune was made by “exploiting two market mistakes: the tendency for quality companies and low-risk stocks to outperform,” says last week’s Wall Street Journal. Referring to the recently foiled Kraft-Unilever deal, the article says that both are “high-quality companies with predictable earnings and strong cash flow, whose shares have lower-than-average volatility and move less closely in line with the market than the norm.” And, the article points out, “investors bought into both of their stories last year.” WSJ explores the factors over the past year that fuel the story of these types of stocks—including depressed bond […]

AQR’s Antti Ilmanen Predicts Low Returns

Low expected returns are going to anchor bad news for all of us for the rest of our working lifetimes, warned AQR principal and researcher Antti Ilmanen at the 2016 CFA Institutes European Investment Conference. This according to an article earlier this month in Enterprising Investor. “I’ve got bad news as a starter,” Ilmanen told the conference audience. He suggested that for a balanced portfolio, the real return would be closer to 1% annually than the “healthy 4% historic U.S. equity risk premium.” He outlined three potential future scenarios: Slow pain, in which low yields persist for years and there […]

How to Invest Like Buffett but via Factors

As the debate continues concerning how quantitative model performance compares to that of active funds, a Bloomberg article from earlier this month discusses the findings of an AQR study that suggest how some quant models could generate returns that approximate those of legendary fund managers. AQR Capital Management, as described in the article, is a “program-driven investment firm whose founders made their names finding the math behind investment success.” The firm’s study compared the investment results of Warren Buffett, George Soros and others with those of “portfolios automatically tuned to investment styles deemed consistent with their philosophies, and found the […]

Investing Like Buffett and Soros Could be Within Reach

New research shows that “ordinary” investors may be able to emulate the extraordinary tactics of legends such as Warren Buffett or George Soros by using factor-based strategies. This according to Validea CEO John Reese in last week’s issue of  The Globe and Mail. The study, conducted by AQR Capital Management, compared returns for “superstar investors to portfolios it constructed with a small set of buy and sell signals that tracked the investing styles of Mr. Buffett, Mr. Soros and others. It managed to get results that were pretty close to the real thing.” This is reflected in a surge in […]