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How Much Are You Paying for Your Size and Value Tilt?
It’s becoming clear that the price for overall U.S. equity market exposure is close to zero. Many market-cap weighted index funds and exchange-traded funds from Vanguard and others are charging expense ratios of five basis points (bps) or less. An interesting, and more difficult, question to answer: How much are you paying to gain exposure to small-cap and value stocks across the funds in the marketplace? This is more difficult to answer because a fund that calls itself “small cap” may own stocks that are materially ....
Comparing DFA Small Value to Vanguard Small Value

Over the past few months, the difference in historical performance between DFA Small Value (ticker: DFSVX) and Vanguard Small Value (VISVX) has narrowed. For example, for the 10-year period ending December 2014, the compound annual return of DFSVX was 7.9 percent while VISVX earned 8.3 percent. Comparatively, for the 10-year period ending December 2012, compound annual returns were 11.3 percent for DFSVX and 9.6 percent for VISVX. What explains this reversal?

Examining the Early Peri....

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....

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 Private Equity Investments Outperform?

The initial academic work on the returns of private equity investments generally found underperformance relative to public market benchmarks like the S&P 500. More recent research, which apparently uses higher-quality data, is coming to the opposite conclusion. But is it really? Professor Ludovic Phalippou from the University of Oxford argues that while this recent research appears to be valid, the S&P 500 isn’t the

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....
What More Can We Expect from Stocks?
A reader asked if I could expand on my post from two weeks back on expected stock returns. Specifically, he asked if I could focus on how tilts toward certain types of stocks could be expected to provide (or subtract) additional expected return beyond what we expect the overall market to do.
In that post, I noted that a reasonable expectation for the long-term real return of U.S. stocks was about 4 percent. ....
Deficit Deals Aren’t Easy
Well, we ended up about where I anticipated. With little to no pressure from the bond markets, I fully expected some scheme that would avert a large portion of the mandatory cuts and tax increases without doing anything to fix the underlying budget deficit problems, and that’s what we got.
Why? The reality is the budget deficit problems won’t be fixed without substantial reduction in entitlement payouts, but pushing these changes through is difficult without external pres....
Consistency of Stock Return Premiums

I’ve blogged previously on numerous stock market return premiums. In this post I’ll be exploring the consistency of the market, size, value and momentum premiums using U.S. stock market data (from Dartmouth Professor Ken French’s Web site) over the period of 1927–2011. Consistency is important because it gives you a sense of how frequently the unexpected happens: bonds outperforming stocks or growth outperforming value.

The Most Efficient Ways to Take Risk

Most people within my world understand that diversification across a large number of stocks is vitally important. This means that the most efficient way to take the risks associated with investing in stocks is to mitigate your exposure to any single company. Far less well understood by the public at large and the advisor community is whether it’s generally more efficient to take risk through stocks or through lower quality bonds. 

As an example, let’s say I had originally decided to allocate....

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