Advisor Perspectives recently carried an article by Michael Nairne of Tacita Capital about factor investing. The article discussed a number of aspects of factor investing, including factor performance and periods of factor underperformance (factor failure). The remarkable thing about relative strength (termed momentum in his article) is the nice combination of strong performance and relatively short periods of underperformance that it affords the investor seeking alpha.
Mr. Nairne discusses a variety of factors that have been shown to generate excess returns over time. He includes a chart showing their performance versus the broad market.
Source: Advisor Perspectives/Tacita Capital (click on image to enlarge)
Yep, the one at the top is momentum.
All factors, even very successful ones, underperform from time to time. In fact, the author points out that these periods of underperformance might even contribute to their factor returns.
No one can guarantee that the return premia originating from these dimensions of the market will persist in the future. But, the enduring nature of the underlying causes – cognitive biases hardwired into the human psyche, the impact of social influences and incremental risk – suggests that higher expected returns should be available from these factor-based strategies.
There is another reason to believe that these strategies offer the prospect of future return premia for patient, long-term investors. These premia are very volatile and can disappear or go negative for many years. The chart on the following page highlights the percentage of 36-month rolling periods where the factor-based portfolios – high quality, momentum, small cap, small cap value and value – underperformed the broad market.
To many investors, three years of under-performance is almost an eternity. Yet, these factor portfolios underperformed the broad market anywhere from almost 15% to over 50% of the 36-month periods from 1982 to 2012. If one were to include the higher transaction costs of the factor-based portfolios due to their higher turnover, the incidence of underperformance would be more frequent. One of the reasons that these premia will likely persist is that many investors are simply not patient enough to stay invested to earn them.
The bold is mine, but I think Mr. Nairne has a good point. Many investors seem to believe in magic and want their portfolio to significantly outperform—all the time.
That’s just not going to happen with any factor. Not surprisingly, though, momentum has tended to have shorter stretches of underperformance than many other factors, a consideration that might have been partially responsible for its good performance over time. Mr. Nairne’s excellent graphic on periods of factor failure is reproduced below.
Source: Advisor Perspectives/Tacita Capital (click on image to enlarge)
Once again, whether you choose to try to harvest returns from relative strength or from one of the other factors, patience is an underrated component of actually receiving those returns. The market can be a discouraging place, but in order to reap good factor performance you have to stay with it during the inevitable periods of factor failure.
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Here is a selection of tunes included on the program and similar
choices in the timeless rock category.
All excellent tunes. All great albums. 1968-1980
but still the very best and constantly be the very best.
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In 1942 four witnesses saw the ship get in Table
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Sadly, the band transmogrified after the death of guitarist/musicologist Brian Jones in July 1969.
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Her singing releases listeners from mystification with operatic noise.
If the movie moves you emotionally, maybe the phase play will too,
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In every way the kid has actually left him.
The Tudors was fantastic and I am now delighting in seeing Natalie Dormer (Queen Ann) play Margaery Tyrell in Game of Thrones.
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Didn’t think I would ever see that motion picture again considering that it frightened me half
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The Lion King, Jr. is a vibrant ensemble program with cast members CONTINUOUSLY moving in and
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Another plays John as the offender, insisting that the band remains together
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The phase version of Disney’s Lion King commemorates its five thousandth efficiencies in London’s West End.
Later on!
Attempt a search and see for yourself, it’s not tough to discover
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Perhaps the cd’s biggest hit was Interstellar Overdrive,” a distinctly psychedelic title and tune, throughout an extremely trippy time, if you remember. In 1965, lead guitarist Syd Barrett, struggling with mental problems, was replaced by his good friend David Gilmour.
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His height and stature modifications. Early on he’s small and small.
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They sourced two clear photos and set to work with the
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Not only did they change the face of music and songwriting, but also in fashion, and culture.
It’s really just one bothersome fanatic with numerous useranames.
The Lion King musical functions stars in animal outfits as well as giant, hollow puppets.
The Beatles, living and dead, never seemed to resolve the Hoax in any interviews.
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Factor Performance and Factor Failure • Systematic Relative Strength • Dorsey Wright Money Management Systematic Relative Strength
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Remembering it was the sixties and nearly everything the Beatles touched has actually been re-released sometimes given that.
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Obviously, the costumes for the primary lions had actually been fascinating, alternating in between having highlighting the lion masks and the human face.
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The facial hair all of a sudden showed up after 1966.
Later on!
Physician Who- This character initially came
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modifications.
A number of possibilities are that 1966-68 would make Paul
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When Ms. Evancho does sing opera arias, she does not
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And he all of a sudden seems to be totally ignorant about
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