The Factor-Based Investing Channel

Credit Risk? Interest-Rate Risk? Both Are Critical

Investors often ask us which of the two primary bond market risks—interest rate or credit—they should focus on in 2017. Our answer? Both of them—and the interaction between the two.

ECRI Weekly Leading Index: "How Reliable Are GDP Consensus Forecasts?"

Today's release of the publicly available data from ECRI puts its Weekly Leading Index (WLI) at 144.6, up just 0.1 from the previous week. It is currently just below its all-time high. Year-over-year the four-week moving average of the indicator is now at 12.32%, up from 12.17% the previous week, and at an interim high. The WLI Growth indicator is now at 10.5, down slightly from the previous week.

Borderline

President Trump is expected to announce a revised tax cut plan soon. In the meantime, it’s worth revisiting how the sausage gets made in Washington. By law, tax code changes must originate in the House of Representatives, and the Senate will have its say.

Gasoline Volume Sales and our Changing Culture

The Department of Energy's Energy Information Administration (EIA) monthly data on volume sales is several weeks old when it released. The latest numbers, through mid-December, are now available. However, despite the lag, this report offers an interesting perspective on fascinating aspects of the US economy. Gasoline prices and increases in fuel efficiency are important factors, but there are also some significant demographic and cultural dynamics in this data series.

We Are Growing Less Positive (But Not Negative) Toward Equities

Equity markets have increased since the U.S. elections for two principal reasons: optimism over a pro-growth legislative agenda from Donald Trump and improving U.S. and global economic and earnings growth.

US Economic Freedom Index Plunged Over Last Eight Years

We touch on several bases today. We begin with the Heritage Foundation’s annual Economic Freedom Index, which plunged during the eight years of the Obama presidency. From there, we look at some recent economic data which is quite encouraging overall.

Our Place in This World

At a recent industry conference, we were confronted by a chart, a presentation and a song. In early 2017, we find ourselves in an investment world where the merit of stock picking and "active" portfolio management are challenged regularly, which has contributed to a mass exodus of assets from "active" funds to low-cost index portfolios.

Southeastern Asset Management: “We welcome unpredictability”

Ross Glotzbach is head of research and a principal at Southeastern Asset Management, one of the most respected value managers. In this interview, he discusses his investment outlook in an era of political and economic uncertainty.

Cash-Out Refinancing During Bubble Years Will Lead to Disaster

Nearly all analysts who write about the housing bubble have focused on the purchasing madness that occurred. While this is important, it overlooks the refinancing insanity of 2004-2007. This refinancing lunacy will devastate mortgage and housing markets for years to come.

Tax Reform: The Good, the Bad, and the Really Ugly—Part Three

Today we come to part 3 of my tax reform series. So far, we’ve introduced the challenge and begun to describe the main proposed GOP solution. Today we’ll look at the new and widely misunderstood “border adjustment” idea and talk about both its good and bad points

S&P 500 Snapshot: Yet Another Record Close

On Friday, the S&P opened lower than Thursdays' close and was fairly flat until late in the day with a rise a couple of hours before close. The index reached its intraday high at close and ended the day with a gain of 0.17%. Week over week, the index saw a gain of 1.51% ending Friday with another record close.

Companies with the Lowest Dividend Yields Are Driving Performance

In the month of January, the most important factor correlation to performance of developed market stocks has been dividend yield (DY).

Forecasting Factor and Smart Beta Returns (Hint: History Is Worse than Useless)

In a series of articles we published in 2016, we show that relative valuations predict subsequent returns for both factors and smart beta strategies in exactly the same way price matters in stock selection and asset allocation.

2017: A Challenging Year Ahead for Portfolio Allocation Decisions

Surprising many investors and pundits alike, the S&P 500 posted a solid return for 2016, finishing the year up close to 10%. If investors never looked at their statements, one might be naïve to how much markets zigged and zagged throughout the year.

The Best Equity Performance May Surprise You

Since 1995 mid-cap stocks have outperformed large- and small-cap stocks. Investors that are under-allocated to the mid cap asset class are potentially accepting greater risk AND missing out on available return. Mid-cap companies often exhibit the nimbleness and growth potential of small caps with the stability of large caps while accepting, but potentially, reducing the risks of both.