The top conversations on APViewpoint last week were started by thought leader Larry Swedroe and member Adam Butler. They generated thoughtful discussions on: how the performance of legendary value investors like Warren Buffett matches up against passively managed alternatives; the art and science of portfolio optimization; and the myth of private equity and venture capital outperformance.
Larry Swedroe’s Warren Buffet and the Superinvestors of Graham-and-Doddsville: A Performance Update provoked 12 comments from advisors discussing the performance of legendary value investors relative to passive alternatives. While some contended that Buffett’s Berkshire Hathaway (BRK.A) and the Sequoia Fund (SEQUX) exhibited stronger returns than Dimensional Fund Advisors’ passive funds (DFLVX) and (DFSVX), most agreed with Swedroe’s claim that passively managed alternatives offer better prospects for the future. Advisors argued that the legendary value investors were successful not because of their ability to pick stocks, but because they were able to “identify the characteristics of stocks that earned premiums well before the academics did.” Some members suggested that, because there are many passive funds that offer systematic exposure to the factors those well-known investors relied on, advisors would be best served investing “in a low-cost, broadly diversified, low-turnover large-cap-value index fund.”
APViewpoint hosted another well attended webinar on July 14, New Research: The Art and Science of Portfolio Optimization, hosted by ReSolve Asset Management CEO Adam Butler. In this second presentation of a four-part series, Butler discussed the relationships between risk and excess returns in the context of portfolio construction. Butler explained that there are several ways markets can reward risk and portfolios can be optimized to achieve the best tradeoff between risk and return. He walked through case studies reflecting various assumptions about market risk, and discussed the benefits of constructing portfolios with dynamic estimates that use near-term historical values to estimate covariance. Butler will be answering questions about his presentation in this follow up conversation, and a replay of the webinar can be viewed here.
Larry Swedroe’s Exposed: The Myth of Private Equity and Venture Capital Outperformance received 28 comments as it continued into its second week of active discussion. This week, the conversation shifted focus to strategies for selecting high-return investments that can be used in place of private equity (PE) and venture capital (VC). Specifically, advisors disagreed over the use and interpretation of the “quality premium” when selecting investments. Some members vehemently maintained that the quality premium is a result of behavioral mispricing “because quality means SAFER, which requires lower return,” and that “all else equal, more profitable companies should get higher returns, but all else isn't equal.” However, others argued that it is possible to identify market anomalies where fundamentals are attractively priced and the relationship between quality and higher returns is dislocated.
APViewpoint will be hosting its next CE eligible webinar, A Powerful New Tool to Comply with the DOL's Fiduciary Rules, on Thursday, July 28, at 4:15 PM ET. In this presentation, founder and CEO of Income Discovery Manish Malhotra will provide an overview of the new rules, and show how Income Discovery’s interactive toolset can aid in this process.
Marianne Brunet is a financial markets analyst with Advisor Perspectives.
