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An Analytical Evaluation of Rising Glidepath Claims

Last year, a piece by Michael Kitces and Wade Pfau made the claim that mechanically increasing the equity allocation during retirement — which they term a “rising glidepath” — could reduce the likelihood that a retiree outlives his or her assets and could decrease the magnitude of shortfall when capital market returns disappoint. Specifically, the paper stated:

Perspective on High-Frequency Trading

I have received a number of questions since “60 Minutes” ran a piece on high-frequency trading (HFT) on March 30 (lest we forget, this is the same “60 Minutes” that ran a piece in 2010 that predicted the municipal market would implode in 2011, and we all know how that turned out). I’ll summarize what I think we know about HFT at this point, a viewpoint that runs counter to the perspective offered on “60 Minutes.”....

Smart Beta Can Be Smart But Is Not New

I held off writing about smart beta strategies as long as I could. The world, after all, is awash in such pieces. I couldn’t ignore it any longer, though, because virtually every piece I’ve read that’s critical of smart beta misses one fundamental point: The term “smart beta” may be new (and has certainly been effective from a marketing perspective) but the underlying strategies themselves are not.

Most of the debate has centered on the non-market-capitalization weighting schemes of smart be....

Do Corporate Bonds Add Value in Portfolios?

I frequently get asked about the merits of corporate bonds, both investment-grade (IG) and high-yield (HY), relative to government and municipal bonds. I don’t believe the risk-return profile for long-term investors (particularly taxable individual investors) is improved by owning IG or HY corporate bonds compared with simply owning a diversified portfolio of stocks and high-quality government bonds.

The key here is to understand that corporate bonds are essentially nothing more than a ....

A Broader Look at Hedge Fund Returns Data

In a recent video blog, I examined the dubious nature of the reported performance analytics of three different hedge funds. As I noted, most hedge funds report risk-adjusted performance and correlation measures based off of monthly returns data. Because a significant number of hedge funds appear to calculate monthly returns using stale prices, these measures make hedge fund results look better than they actually are. Now, I’m going to illustrate how these same biases exist in....

Bond Funds Aren’t Naturally Riskier Than Individual Bonds
In spending significant time talking to clients and wealth advisors about fixed income, one common misconception is that bond funds are more exposed to interest rate risk than laddered individual bond portfolios. The logic basically starts and ends with the observation that individual bonds can be held to maturity while bond funds don’t necessarily hold all bonds until they mature. Because all individual bonds can be held to maturity, as the logic goes, it doesn’t matter if their prices go up or down in the interim. ....
Is DFA’s New Research Flawed?

Folks have been lighting up my inbox with questions and comments about an Advisor Perspectives piece by Michael Edesess (link included for the three of you who may not have seen the piece … you three may also not be aware that Miley Cyrus appeared on the MTV Video Music Awards … link not included).

The article is critical of DFA’s recent work on profitability. ....

Municipal Bond Fund Investors Are (Unfortunately) Selling Again

Over the past week, I’ve been reading a few pieces summarizing Detroit’s Chapter 9 bankruptcy filing. One piece noted the absolutely massive amount of outflows from municipal bond funds in June and July. In June, the Investment Company Institute (ICI) reported outflows of $16 billion, which is the largest monthly outflow ICI has recorded in the dataset I’m using. Further, ICI reports that to....

How to Make Your Own Investment-Grade Corporate Bond Fund
Last week, I outlined how to construct a portfolio of stocks and high-quality bonds to replicate the returns of high-yield corporate bonds. This week I’m tackling investment-grade corporate bonds.

The same basic logic as last week holds: There’s not much unique about investment-grade corporate bonds that you can’t achieve with a diversified portfolio of stocks and high-quality bonds. The only difference is you don’t need as much in stocks to replicate the returns of ....
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