Cliff's Perspective

Latest Posts



    • Topic:

      Equities

    With the FANGs (née FAANGs, née FAAMGs) in the news again, for good and bad, we thought it would be a good time to update our analysis that first looked back at 2015. Once again, we find less going on than first meets the eye. Let me try a sports analogy. It’s always interesting to report who won the Super Bowl. But, it’s not at all interesting to report that someone won the Super Bowl. Now, it would indeed be interesting to report if the winning team did something truly outsized like post a 19-0 record for the season. A lot of the reporting of ...

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    • Topic:

      ESG

    Negative screening is a common application of Environmental/Social/Governance (ESG) investing. It avoids “sin stocks” and divests from industries or firms deemed immoral or having poor or undesirable standards along one of the three E, S or G dimensions.1 It’s promoted largely on the fact that it’s virtuous. While we may all define virtue differently, advocating for it in this way is fair and appropriate. However, employing these constraints is also often promoted as enhancing expected returns. That is, if you avoid certain companies, industries, ...

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    • Topic:

      Factor Investing, Style Investing, Data

    We are the whipping boy for a recent article on the dangers of data mining in our field. And the whipping is delivered largely based on an unsupported shot taken by my frequent foil and sparring partner, Rob Arnott. Before I take on this attack1 we need to back up a bit.

    Data mining, that is searching the data to find in-sample patterns in returns that are not real but random, and then believing you’ve found truth, is a real problem in our field. Random doesn’t tend to repeat so data mining often fails to produce attractive real life returns going forward. And ...

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  1. March 15, 2017
    • Topic:

      Factor Investing, Style Investing

    Here is the latest and most exhaustive in our ongoing attempt to ruin the fun for those who think contrarian factor timing is easy and for those who think current factor valuations are extreme, in spite of all of the evidence to the contrary for both.1

    When you write a philippic on something, you generally hope you have put the matter to rest.2 But, my philippic was admittedly designed to be lighter on data (not bereft, just lighter) and heavier on argument. Our latest paper provides a lot of both. Still, much of the basic intuition remains the same.

    I’d sum up ...

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    • Topic:

      Corporate Governance

    In this editorial, in the Wall Street Journal no less, two accomplished executives who should know far better argue not to expense stock options for employees making less than $100,000 a year. Why not also ignore the wage expense of these same employees? I will explain. It's obvious idiocy. Ok, maybe I'll explain a bit more. An expense is an expense. If you want to help "inequality," go for it, but do it honestly and directly not by warping the accounting system and bending rules you still (incredibly) object to and would obviously discard in total if allowed (it's obvious ...

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  2. February 12, 2017
    • Topic:

      Factor Investing, Style Investing

    Our latest paper Betting Against Correlation tries to look deeper into what drives the low-risk effect. In short, we create a new priced factor that helps distinguish between competing, and confounding, stories explaining the efficacy of low-risk investing.

    Recall that the low-risk effect is the tendency for low-risk assets to do better than they should versus high-risk assets. That’s a loaded sentence as I haven’t defined risk or how we should measure “better than they should.” When it comes to the low-risk effect, risk has been measured in many ...

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  3. February 09, 2017
    • Topic:

      Alternative Investing

    There is a recent post by Eric Nelson that uses AQR to make one really good point and then to, kind of oddly, pointedly not ask the next logical question. Here I ask and answer that question.

    Eric reminds us that what the average investor in a fund gets is different from the return of that fund. That’s true and important. If they get in and out with poor timing they can sabotage themselves. Next, his thesis is that investors in “alternative” funds, funds meant to be diversifying to traditional investments and often using more hedged strategies, are worse ...

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    • Topic:

      Portfolio Management

    The Department of Labor’s Fiduciary Rule, which is applicable to retirement plans subject to ERISA such as 401(k) plans and to certain other retirement plans such as IRAs, is set to go into effect in April 2017. What the rule does is extend a fiduciary duty or standard to a broad set of investment advisors (many, particularly at broker-dealers, who were previously exempt) who provide recommendations to such plans. A "fiduciary duty” is the highest standard of care recognized in American law. Among other things it means that you must act solely in the best ...

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    • Topic:

      Portfolio Management, Risk Management, Factor Investing

    Writing my post titled “2016 Was Not a Particularly Volatile Year” on realized risk/variability turned out to be even more fun than usual as I got a lot of great comments on it. Of course, some didn’t buy it. Some said things like “yeah, but you have to admit this or that was crazy,” whatever this or that was. Sometimes I agreed, sometimes I didn’t. We all have a different definition and standard for crazy! By far the most common comment was “ok, you just looked at the S&P 500, what about…?” I can’t look at ...

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    • Topic:

      Portfolio Management, Risk Management, Factor Investing

    Maybe it’s just me but a lot of end-of-year commentary about financial markets in 2016, implicitly and sometimes explicitly, makes it sound as if it was a crazy year. It wasn’t. In fact, it was amazingly normal. This is true of at least the S&P 500 (I’m not going to be more ambitious here) which is what I think many of these commentators are talking about.1,2

    Annualized daily volatility during 2016 came in at 13.1%. Based on rolling same-length periods going back to 1929 this falls at the 47th percentile.3 You say you don’t want to compare to ...

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