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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:

Resurrecting the Size Premium

There have been a number of articles over the past few years claiming to refute the existence of a small-cap (or size) premium, which is the historical difference in returns between small-cap stocks and large-cap stocks. While the critiques have been somewhat varied, two common claims are that the risk-adjusted returns of small-cap stocks have been similar to large-cap stocks and that the performance of small-cap stocks has been weak in international stock markets.

The Size Premium i....

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....

The American Funds Advantage?

I was forwarded an article that American Funds published touting the superiority of its funds relative to index strategies. The piece contains statements like this: “Some investment managers, American Funds among them, have distinguished themselves with a proven track record of consistently outpacing broad market returns.” And other fabulous statements like this: “Obviously, some are playing at a higher level, and using the averag....

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. ....

Can the Size and Value Premiums Be Captured?
The debate about whether the size and value premiums have existed on paper was settled many years ago. The long-term historical data clearly shows robust size and value premiums. The average annual U.S. size and value premiums have been 3.6 and 4.8 percent, respectively, from 1927-2012. What has been more hotly debated, however, is whether these premiums could actually be captured in the real world net of t....
Why Rate Increases Are Almost Certainly Good News for Investors
Interest rates have been so low for so long that rate increases in 2013 have no doubt surprised some investors. Per the Treasury's site, the five-year Treasury rate went from 0.76 percent at the start of the year to 1.63 percent through August 19, and the 10-year Treasury rate increased from 1.86 percent to 2.88 percent over this period. These rate increases have prod....
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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