The Index Fund Provider Price-Cutting War
Top 5 of the Week of February 26
Corey Hoffstein kicks off our Top 5 this week, with his view on calculating timing luck. Humble Dollar writer, Jonathan Clements, discusses the price-cutting war between index fund providers. And writing for Alpha Architect, Nicolas Rabener lends his perspective to the ongoing debates regarding value and momentum portfolio construction.
The team at Farnam Street Blog compare the uncertain worlds poker players and investors make decisions in. And Visual Capitalist Jeff Desjardins reveals the periodic table of commodity returns…
Know When to Fold and When to Overlap
- Timing luck is defined by when we choose to rebalance our investment strategies—e.g., returns from rebalancing in the middle of the month will differ to those from rebalancing at the beginning/end
- Overlapping portfolios (having repeated versions of your portfolio offset to overlapping holding periods among multiple managers) is one method to mitigate timing luck
- Though a more feasible solution would perhaps be to have a single manager run “different sleeves implementing each rebalance iteration”
The Index Fund Provider Price-Cutting War
- The current war being waged among index fund providers is increasing the pressure on money managers to reduce fees
- A move which could make you theorize that the lowest cost funds may provide the best performance
- Any cross-fund comparison is impossible though, as most index fund providers seem to track different indexes in an attempt to purposely screen their activities and make it difficult
The Ongoing Discussion in Factor Investing
- There are multiple ways to combine Value and Momentum factors when constructing an ideal factor portfolio
- Hindsight, though, demonstrates that including Low Volatility would have resulted in better returns than using Momentum in the last 20 years of the U.S. stock market
- But there is more substantial long-term evidence to support the two-factor combination of Value and Momentum over performance chasing that includes any others
What factors are combined in your portfolio? Share your comments in the section below
Weighing Probabilities
- Investors are much like poker players in that they are trying to make the best choice by weighing probabilities in a convoluted world involving many factors
- The best investors and players, though, think in terms of expected value, which puts more weight on the magnitude of correctness achieved rather than the frequency
- Whilst it’s our instinct to be happier the more times we are right, you can train your brain to think this way to better consider all outcomes and make supercharged decisions instead
Commodity Returns & Their Volatility
- Some may think that commodities are the predictable assets of the stock market
- But as the periodic table showing returns over the last decade demonstrates, their volatility is exciting for everyone to observe
- Especially if we examine 2017; the second year of recovery post-commodity collapse (2011-2015) with the big winners of the year being palladium, aluminum, coal, copper, and zinc
Top 5 of the Week is a summarized collection of financial investment articles that we like and think you might like too. Having written thousands of pages of equity strategy and company research between us, we understand the allure of the ever-changing world of finance. Investing is an art form—and like everything, something you can work on and improve at. There are some excellent writers out there on the finance web, some offer a running commentary on today’s market, some are doing research, some have tips on how to Become a Better Investor, and some just lift the cloud of fog behind a lot of financial jargon. Each week we will keep you up to date with the top 5 articles worthy of your attention.
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