Finomial

Bonds are typically considered safe investments. However, there were decades of negative real returns. Drawdowns reached 50% for U.S. Treasuries and Bonds.

ETFs are a negligible owner of US stocks. Primary and secondary ETF trading has not grown quicker than total stock trading. The impact of ETFs on stocks is less strong than frequently suggested.

Defined outcome ETFs have quickly gathered almost $5 billion in assets; Not unexpected given their much lower drawdowns when the market crashed in March 2020; However, they are complex and expensive products and there are viable alternatives.

Evaluating the unusual characteristics of the profitability factor

Value investors earn a premium for holding undesirable stocks. Market skewness may identify periods where the premium is more attractive. The returns from the Value factor since 1926 were zero when market skewness was negative.

Do Active Managers Provide Higher Factor Exposure than ETFs? Investors can express factor views via smart beta ETFs or mutual funds. Some mutual funds offer higher factor exposure than smart beta ETFs. Given higher fees, strong views on expected factor performance are required.

The tax efficiency of the Value factor can be improved by reducing exposure to dividend-yielding stocks. Improving the tax efficiency reduces the performance in Europe and Japan, but not in the US. Reducing turnover can be considered for minimising capital gains and stamp duty taxes.

Buying high yielding and selling low yielding stocks is not an attractive strategy. Combining Dividend Yield with Quality & Growth factors improves the performance. Interestingly Dividend Growth adds relatively little value.

None of the factors consistently generated positive performance during recent market crashes. However, almost any factor exposure would have increased the risk-return ratio of an equity-centric portfolio. Low Volatility and Mean-Reversion would have been most beneficial. Momentum least.

Analysis of factors and interest rates, which highlights that there are no consistent relationships between Value, Size, Momentum and interest rates in the US. Applies to high and low and increasing and decreasing rate environments.

Analysis of the Value factor in the US by sectors. Using price-to-book (PB) or price-to-earnings (PE) results in similar Value factor performance. Some sectors are perpetually expensive while others are always cheap. Sector rotation is higher with PE than with PB.