Factor-Based Investing

The run-off election looks tight in Argentina, where I’m attending a Young Presidents’ Organization (YPO) event in Buenos Aires.

Year-to-date, technology has outperformed the broader market largely given the prevalence of low leverage, high profitability and consistent earnings across many names in the mega-cap tech space.

In our 2024 outlook, bonds emerge as a standout asset class, offering strong prospects, resilience, diversification, and attractive valuations compared with equities.

Third-quarter earnings announcements have almost come and gone, with yesterday being the last big burst of companies. Some key firms have yet to announce, like Nvidia and Walmart, but everything I’m seeing says it surpassed expectations.

Like some advances earlier this year, the market's current surge hasn't been defined by strong breadth underneath the surface—which will be key for a sustained, durable advance.

Treasury yields have dropped as weak economic data suggests the Federal Reserve may begin cutting the federal funds rate target earlier than previously expected.

A China ‘Recovery’: How important is the loss of confidence within China itself?

The third quarter was a more favorable environment for active managers in U.S. Large and Small Caps, Japan, Australia, and Canada equities, while being more challenging for Global, Global ex-U.S., Emerging Markets, Europe, UK and Long/Short managers.

New investors are overwhelmingly choosing ETFs as their investment vehicle of choice. Between June 13 and June 28, Charles Schwab conducted a comprehensive survey of 2,200 investors for its 2023 ETFs and Beyond Study.

The potential for a Fed pause presents an opportunity for investors to consider adding duration back into their portfolios. In this market regime, we believe duration serves well as hedge and equity diversifier.

The direction of interest rates was the biggest factor moving markets in the third quarter. Sentiment on technology stocks appeared to shift. Money market assets reach historic high, but returns lag stock market.

In this period of higher interest rates, the quest to capture alpha and mitigate risk in corporate credit requires a more refined approach.

Following a strong first half of 2023, third-quarter returns were more challenged across almost all asset classes. One outlier was high-yield debt, which often serves as a way to de-risk equity exposures when stocks are under pressure.

Financial markets have changed dramatically since balanced portfolios were introduced to investors decades ago. As markets evolve and grow more complex, active management plays a greater role in the success of these strategies, which offer a mix of 60% equities and 40% fixed income.

While often difficult, investing rules can help us maintain our focus and investment discipline in volatile or uncertain markets.

While bond prices are generally down, the income they provide is up, providing potential opportunities for fixed income investors.

In Q3, the strongest performance among factors was seen in developed ex-U.S. large cap and small cap and U.S. small cap, where Value outperformed by 4.9%, 3.3% and 3.3%, respectively. The weakest performance among factors was in U.S. small cap, where the Size factor underperformed by -2.4%.

Higher macro and market volatility, along with greater dispersion, creates a favorable environment for active trading, according to K2 Advisors. Get the team’s latest hedge-fund strategy outlook.

Investment taxes can have a real impact on a portfolio. Investors should be aware of four key tax realities they currently face. Without a plan to manage these taxes, investors may find their ability to retire comfortably could be compromised.

As with most new expressions, “smart beta” is in the process of seeking an established meaning. It is fast becoming one of the most overused, ill-defined, and controversial terms in the modern financial lexicon.

The Fed kept rates unchanged at today’s meeting, but whether they are done with rate hikes or simply at a pause is yet to be determined.

In smart beta, we find that factor returns—net of changes in valuation levels—are much lower than recent performance suggests. In fact, many of the most popular new factors (some 458 at last count) have succeeded solely because they have become more expensive.

On October 27, 2023, VettaFi hosted an Income Strategy Symposium that saw nearly 900 advisors and investors register for the event. The symposium was a success for everyone involved, and included some of the top firms and individuals in the industry offering their insights into several different income-related topics.

VettaFi hosted an Income Strategy Symposium that saw nearly 900 advisors and investors register for the event. The symposium was a success for everyone involved and included some of the top firms and individuals in the industry offering their insights into several different income-related topics.

While environmental, social, and governance criticism remains elevated (and loud) and interest rates are affecting the performance of the related equities and exchange traded funds, ESG-committed investors can find relief on multiple fronts.

Despite progress on bringing down inflation from mid-2022 highs, data from online job postings suggests that wage pressures may be reaccelerating. Beneath the surface, growing divergence in wage gains across occupation categories may be adding a layer of complexity to the outlook for labor markets.

There are reasons to be cautious in many markets, but low volatility and high/sustainable dividend stocks can help mitigate risk while providing income and equity exposure. The Franklin Templeton Investment Solutions Team weighs in.

Investments in alternative energy have become unattractive due to higher interest rates, not changes in government policies, adoption or pricing of green technologies.

U.S. equities have ruled the roost for the better part of the last decade, but another region may emerge as the leader if the business cycle changes.

Restrictive monetary conditions, from higher yields and tighter lending conditions, are the Fed’s “Waterloo.”

We have been looking at big historical/economic/political cycles for the past two months.

Active ETFs have gained in popularity in recent years. However, some pundits have prematurely taken out their shovels for some funds. Even as these products show signs of vitality.

As investors face continued macroeconomic and market uncertainty, evolving the 60/40 portfolio of stocks and bonds to include alternative investments may help build portfolio resiliency.

Japanese profits have benefited from the prolonged deleveraging of Japan Inc. The reduction in debt coupled with exceptionally low interest rates has allowed cash flow to impact the bottom line.

Muni bond ETFs gathered $6.3 billion in the first nine months of 2023. However, a healthy $1.4 billion flowed in during September alone. According to Columbia Threadneedle, there is good reason to focus on the asset category.

Interest expense is a large and growing issue for both the economy and stock market, which reinforces why investors should stay up in quality amid interest-rate-driven headwinds.