RESEARCH COMPENDIUM 2018

Research is Creating New Knowledge – Neil Armstrong

December 2018. Reading Time: Several hours. Author: FactorResearch.

RESEARCH COMPENDIUM 2018

In 2018 we published more than 50 research notes and 4 white papers on mainly factor investing, but also on other topics like zombie stocks, replicating private equity returns, statistical arbitrage, and mutual fund performance chasing. We would like to thank you for reading and always appreciate feedback, especially if critical.

The Research Compendium 2018 contains all of our research published this year.

BEST OF FACTORRESEARCH 2018

Our top 5 most-read research reports of 2018 are the following:

  1. Multi-Factor Models 101
  2. Factor Allocation Models
  3. Alpha Momentum
  4. Private Equity: The Emperor Has No Clothes
  5. Smart Beta or Smart Marketing?

Further details on the top 5:

MULTI-FACTOR MODELS 101

  • Three common approaches for creating multi-factor portfolios are the Combination, the Intersectional and the Sequential models
  • The results from the Combination and Intersectional models are comparable in terms of trend
  • Each model has its own advantages and disadvantages, the selection will depend on investor preferences

FACTOR ALLOCATION MODELS

  • Factor timing and factor risk management are related concepts, but have different objectives
  • Factors have unique characteristics that require a tailored risk management approach
  • A multi-dimensional factor risk management model shows consistent increases in risk-return ratios and decreases in maximum drawdowns across markets

ALPHA MOMENTUM

  • Stocks can be ranked by alpha instead of stock returns
  • Alpha Momentum generates a higher and more consistent performance than Price Momentum
  • Momentum crashes are reduced significantly and risk-return ratios increase

PRIVATE EQUITY: THE EMPEROR HAS NO CLOTHES

  • Private equity returns can be replicated with small cap equities
  • Small, cheap and levered stocks would have achieved higher returns since 1988
  • Valuation and debt multiples are at all-time-highs, lowering expected returns

SMART BETA OR SMART MARKETING?

  • Smart beta ETF investors seem to ignore empirical evidence
  • Excess returns from smart beta are substantially different from factor returns
  • Smart beta ETFs offer little diversification for an equity-centric portfolio

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