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Do Rising Rates Spell Doom For REITs?

As we have discussed many times, much of the conventional wisdom on investing is simply wrong. For our purposes, we can define conventional wisdom as those ideas that are so commonly accepted that they go unquestioned. Today, we’ll look at the idea that rising interest rates would doom returns to real estate investments, specifically the…

The Long And Short Of The Low-Volatility Anomaly

As far back as the early 1970s, research has shown that the lowest volatility stocks have provided better returns than the highest volatility stocks. These findings run counter to economic theory, resulting in the low-volatility anomaly. The academic research, combined with the 2008 bear market, has led to low-volatility strategies becoming a darling of investors….

Does Taking Corporate Credit Risk Add Value?

Earlier this week, we looked at whether adding credit risk in the form of lower investment-grade municipal bonds was an efficient approach to improving returns. The evidence is clear that this isn’t the case. In fact, taking more credit risk resulted in worse relative performance. Today, we’ll apply the same approach to determine whether adding…

Do Lower Investment-Grade Municipal Bonds Add Value?

The Federal Reserve’s zero-interest rate policy is now well into its fifth year, probably far longer than most – if not all – investors were expecting. This persistence of low interest rates has pushed many investors to stretch for greater yield from their bond investments. One way to achieve higher yield is to take on…

The Role Of Credit Risk In Exchange-Traded Notes

The financial crisis of 2008 underscored the role that credit risk plays in many investments. And while counterparty risk has been in the spotlight with such derivatives as credit default swaps, comparatively little attention is paid to its impact on exchange-traded notes (ETNs), a type of tracking product. ETNs are relatively new — but rapidly…

Why We Love Premium Bonds And You Should Too

A common error made by many bond investors is to avoid purchasing premium bonds – bonds that trade above their face value (or par, typically 100). A bond will trade at a premium when the coupon (stated) yield is above the current market rate for a similar bond of the same remaining term to maturity….

The Hurdles Are Getting Higher For Active Management

The goal of actively managed funds is to generate alpha – returns above the appropriate risk-adjusted benchmark. We might add here that the alpha should also be sufficient to compensate for the increased idiosyncratic risks active managers take by failing to fully diversify, and that the only way to generate alpha is to hold a…

Do Day Traders Evidence Skill?

Professors of finance Brad Barber and Terrance Odean have done extensive research on the performance and habits of individual investors. Among their findings is that, on average, individual investors lose money from trading – and not all of the losses can be explained by trading costs. They’ve found that individual investors can have perverse security…

Does Private Equity Deliver Alpha

The term private equity – PE – is used to describe various types of privately placed (non-publicly traded) investments. It has grown tremendously over the past 30 years – thanks largely to America’s pension funds as they search for alternatives to public equity markets that might help them meet their return objectives. Frank Jian Fan,…

Has The Realized Equity Premium Been Shrinking?

Tying up our two-part series on premiums, today we’ll explore the equity premium. Claude Erb has done a series of papers in which he examines the various premiums – size, value, momentum, and beta – and found that there’s a demonstrable trend in each case of the premiums shrinking in terms of realized returns. His April…

Myths About Momentum: Part II

Today concludes a two-part series on myths about momentum. We’ll pick up right where we left off with the additional myths the paper “Fact, Fiction and Momentum Investing” discusses. Read the rest of the article on Seeking Alpha.

Myths About Momentum: Part I

Today begins a two-part series on momentum and the myths that surround it. Momentum is the phenomenon that explains how securities, which have performed well relative to peers (winners), on average, continue to outperform, and securities, that have performed relatively poorly (losers), tend to continue to underperform. Jegadeesh and Titman are credited with the first…

Is Momentum Overgrazed?

My previous post addressed the issue, “Is the stock market overgrazed?” It raised questions about the forward-looking expectations for the beta, size and value premiums that have existed historically. Researcher Claude Erb showed that each of these premiums has been declining over time, leading to at least the suspicion that they have been “overgrazed.” *Erb noted…

Has The Small-Cap Premium Collapsed?

Today begins a two-part series exploring premiums, starting with the size premium. With the dramatic outperformance of U.S. small-cap stocks over the past several years, we’ve had many stories in the financial media warning investors about their future performance. Since valuations are the best predictors of future returns that we have, we can examine the…

Is Cohen & Steers Really The King Of REITS?

Articles such as the recent post on Seeking Alpha that referred to Cohen & Steers as the “King of REITs” stir my interest – though, perhaps, not in a typical way. The article noted that “Cohen & Steers has been around since 1986 and is the first investment company to specialize in investing in listed real estate…