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Active Funds: Are They Bacon Savers?

Top 5 of the Week of March 19

In our Top 5 this week, Alpha Architect’s Maneesh Shanbhag, CFA, asks if factors are better than asset classes. Abnormal Returns’ Tadas Viskanta discusses the merit of collectibles as investments. And Tara Lachapelle, writing for Bloomberg Gadfly, reveals that the next Warren Buffett will, no doubt, be a woman.

Ziad Abou Gergi, CFA, from Enterprising Investor, walks us through manager selection in multi-asset portfolios. And Morningstar’s Jeffrey Ptak, CFA, questions if active funds will “save your bacon”…


Factors or Asset Classes? Bold or Vanilla?

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  • The lure of factor investing lies in its low-cost outperformance, but to be valuable, it must provide positive risk-adjusted returns too
  • In the past, pure factors have bought and held vanilla asset classes (stocks and bonds) to earn similar risk-adjusted returns
  • But factors have a bias to perform at their best—whereas, asset classes will yield portfolio improvements more dependably—in this case, the vanilla flavor may not be exciting, but it’ll prove more profitable

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Speculate to Accumulate—Sometimes…

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  • Baseball cards and Beanie Babies make for two of the most notable collecting manias in the past few decades, and it would seem there’s been a recent resurge for the latter too
  • Whether it’s manufactured collectibles like these or modern art, there are many underrated costs that come into play with these assets like insurance, storage, and maintenance
  • While our desire to collect is strong, view it as an engaging hobby rather than an investment of major value

Are you a collector? Share your comments in the section below
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This Is a Man’s World, But It Wouldn’t Be Nothing Without a Woman

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  • Patience is the leading quality that sets Warren Buffett apart from other investors; he is content to wait for bargains
  • Rather than succumb to short-term trends, Buffett takes the long view over reacting to what is happening in the markets—or the government even
  • Which is why, if the playing field levels out, the next Warren Buffett is likely to be a woman, as they tend to share the same tendencies Buffett is renowned for

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Decisions, Decisions

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  • When it comes to multi-asset portfolios, choosing a skilled and experienced manager is key—especially in down markets
  • Finding one with a good track record is a fairly simple process, it is understanding their factors and style analysis for generating alpha that is hard
  • Rock-bottom ETFs are no real substitute when it comes to alpha generation, but managers need to adapt to the market and the current sensitivity around share price to be competitive

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Active Funds: Are They Bacon Savers?

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  • On examining active U.S. equity funds in “down” and “up” markets over the last 20 years, data shows that these funds outperformed twice as better in down months than during up ones
  • While this is measured across periods of 36 months, there were far more up periods than down ones—and the outperformance was inconsistent per fund
  • So, while the evidence is there to confirm that active U.S. equity funds do better during down markets, there isn’t enough data to support the cause in favor of active funds

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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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