Description
FUNDAMENTALS
Endnotes
May 2015
6.
1. http://www.todayiatearainbow.com/
2. http://www.researchaffiliates.com/AssetAllocation/Pages/Core-Overview.aspx
3. Supporting this main tenet are three beliefs: investor preferences are
broader than risk and return; prices vary around fair value; and a lack of
conviction prevents investors from exploiting long-term value. See “Our
Investment Beliefs” Fundamentals (October 2014)
4. “Rebalancing: Boring and Dull? Not!” FQ Perspective (April 2001)
5. Over the course of our collective careers, the three of us have worked for
two different consulting firms, two hedge funds of funds, and one $100
billion asset owner.
7.
The average flow-weighted return is a simple weighted-average return
with the weights being the net flows in 2014. The funds with higher
(lower) net inflows receive a proportionally greater (smaller) weight in
the average flow-weighted return of the popular group. The same is true
for the unpopular group.
Of course, not all of these funds exhibit relatively static exposures; averages mask the truly tactical managers.
Digging a little deeper reveals the managers who are willing to bear some maverick risk and allow their exposures to deviate from those of their peers. When ranking the funds by their volatility in beta terms, those in the top 20% (i.e., the most tactical managers) swung their equity exposure by a range more than double that of the typical fund. Over the seven-year horizon, this most dynamic group wasn’t shy about shifting their equity betas, with some reaching a low of 0.0 times and others approaching a high of 1.1 times. Disclosures The material contained in this document is for general information purposes only.
It is not intended as an offer or a solicitation for the purchase and/or sale of any security, derivative, commodity, or financial instrument, nor is it advice or a recommendation to enter into any transaction. Research results relate only to a hypothetical model of past performance (i.e., a simulation) and not to an asset management product. No allowance has been made for trading costs or management fees, which would reduce investment performance.
Actual results may differ. Index returns represent back-tested performance based on rules used in the creation of the index, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are not managed investment products and cannot be invested in directly.
This material is based on information that is considered to be reliable, but Research Affiliates® and its related entities (collectively “Research Affiliates”) make this information available on an “as is” basis without a duty to update, make warranties, express or implied, regarding the accuracy of the information contained herein. Research Affiliates is not responsible for any errors or omissions or for results obtained from the use of this information. Nothing contained in this material is intended to constitute legal, tax, securities, financial or investment advice, nor an opinion regarding the appropriateness of any investment. The information contained in this material should not be acted upon without obtaining advice from a licensed professional.
Research Affiliates, LLC, is an investment adviser registered under the Investment Advisors Act of 1940 with the U.S. Securities and Exchange Commission (SEC). Our registration as an investment adviser does not imply a certain level of skill or training. Investors should be aware of the risks associated with data sources and quantitative processes used in our investment management process.
Errors may exist in data acquired from third party vendors, the construction of model portfolios, and in coding related to the index and portfolio construction process. While Research Affiliates takes steps to identify data and process errors so as to minimize the potential impact of such errors on index and portfolio performance, we cannot guarantee that such errors will not occur. The trademarks Fundamental Index™, RAFI™, Research Affiliates Equity™ and the Research Affiliates™ trademark and corporate name and all related logos are the exclusive intellectual property of Research Affiliates, LLC and in some cases are registered trademarks in the U.S. and other countries.
Various features of the Fundamental Index™ methodology, including an accounting data-based non-capitalization data processing system and method for creating and weighting an index of securities, are protected by various patents, and patent-pending intellectual property of Research Affiliates, LLC. (See all applicable US Patents, Patent Publications, Patent Pending intellectual property and protected trademarks located at http:/ / www.researchaffiliates.com/Pages/ legal.aspx#d, which are fully incorporated herein.) Any use of these trademarks, logos, patented or patent pending methodologies without the prior written permission of Research Affiliates, LLC, is expressly prohibited. Research Affiliates, LLC, reserves the right to take any and all necessary action to preserve all of its rights, title, and interest in and to these marks, patents or pending patents. The views and opinions expressed are those of the author and not necessarily those of Research Affiliates, LLC.
The opinions are subject to change without notice. ©2015 Research Affiliates, LLC. All rights reserved. 620 Newport Center Drive, Suite 900 | Newport Beach, CA 92660 | + 1 (949) 325 - 8700 | www.researchaffiliates.com Page 5 .
Digging a little deeper reveals the managers who are willing to bear some maverick risk and allow their exposures to deviate from those of their peers. When ranking the funds by their volatility in beta terms, those in the top 20% (i.e., the most tactical managers) swung their equity exposure by a range more than double that of the typical fund. Over the seven-year horizon, this most dynamic group wasn’t shy about shifting their equity betas, with some reaching a low of 0.0 times and others approaching a high of 1.1 times. Disclosures The material contained in this document is for general information purposes only.
It is not intended as an offer or a solicitation for the purchase and/or sale of any security, derivative, commodity, or financial instrument, nor is it advice or a recommendation to enter into any transaction. Research results relate only to a hypothetical model of past performance (i.e., a simulation) and not to an asset management product. No allowance has been made for trading costs or management fees, which would reduce investment performance.
Actual results may differ. Index returns represent back-tested performance based on rules used in the creation of the index, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are not managed investment products and cannot be invested in directly.
This material is based on information that is considered to be reliable, but Research Affiliates® and its related entities (collectively “Research Affiliates”) make this information available on an “as is” basis without a duty to update, make warranties, express or implied, regarding the accuracy of the information contained herein. Research Affiliates is not responsible for any errors or omissions or for results obtained from the use of this information. Nothing contained in this material is intended to constitute legal, tax, securities, financial or investment advice, nor an opinion regarding the appropriateness of any investment. The information contained in this material should not be acted upon without obtaining advice from a licensed professional.
Research Affiliates, LLC, is an investment adviser registered under the Investment Advisors Act of 1940 with the U.S. Securities and Exchange Commission (SEC). Our registration as an investment adviser does not imply a certain level of skill or training. Investors should be aware of the risks associated with data sources and quantitative processes used in our investment management process.
Errors may exist in data acquired from third party vendors, the construction of model portfolios, and in coding related to the index and portfolio construction process. While Research Affiliates takes steps to identify data and process errors so as to minimize the potential impact of such errors on index and portfolio performance, we cannot guarantee that such errors will not occur. The trademarks Fundamental Index™, RAFI™, Research Affiliates Equity™ and the Research Affiliates™ trademark and corporate name and all related logos are the exclusive intellectual property of Research Affiliates, LLC and in some cases are registered trademarks in the U.S. and other countries.
Various features of the Fundamental Index™ methodology, including an accounting data-based non-capitalization data processing system and method for creating and weighting an index of securities, are protected by various patents, and patent-pending intellectual property of Research Affiliates, LLC. (See all applicable US Patents, Patent Publications, Patent Pending intellectual property and protected trademarks located at http:/ / www.researchaffiliates.com/Pages/ legal.aspx#d, which are fully incorporated herein.) Any use of these trademarks, logos, patented or patent pending methodologies without the prior written permission of Research Affiliates, LLC, is expressly prohibited. Research Affiliates, LLC, reserves the right to take any and all necessary action to preserve all of its rights, title, and interest in and to these marks, patents or pending patents. The views and opinions expressed are those of the author and not necessarily those of Research Affiliates, LLC.
The opinions are subject to change without notice. ©2015 Research Affiliates, LLC. All rights reserved. 620 Newport Center Drive, Suite 900 | Newport Beach, CA 92660 | + 1 (949) 325 - 8700 | www.researchaffiliates.com Page 5 .
