RR #213 - Expected Returns and Factor Investing

In today’s episode, we beg the question: is factor investing worth it? Factor-tilted portfolios tend to perform independently of the market and today, we break down a few of the characteristics associated with higher expected returns, as well as the challenges of factor investing. We give a brief history of pricing models and walk step-by-step through a hypothetical factor investment; taking the Fama and French five-factor model into account. Additionally, we discuss liability duration and bond returns and speculate whether pooling finances results in greater relationship satisfaction. Tune in to hear our take on everything from book clubs and the impact of inflation on consumption liability assumptions to our final verdict on whether factor investing is, in fact, worth your while.

Timestamps:
0:00 Intro
4:37 Discussion on Cam Harvey's Crypto Ep.
10:23 Reviews
21:56 Cameron's Book Recommendation
29:19 Pooling Finances and Relationship Satisfaction
31:34 Liability Duration and Recent Bond Returns
39:12 Is Factor Investing Worth It?

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[thomas]

It probably goes without saying, but your opening is part of why I listen to your show. Keep up the great work and thank you!

[jean-claudebertrand]

I would like to suggest as guests to have PWL Capital Portfolio Managers from your offices across Canada. You have so many great PM which have good experiences to share with your audience.

[davieb]

Can you ask the former CIO of vanguard, how they ensure their active funds don't take advantage of their own passive funds? Seems that if their was an active manager in Vanguard, they would have inside knowledge of trades that they could take advantage of.

[translumination]

I remember Rick Ferri made the comment that if you're going to do factor investing you have to be in it forever ie decades because you have to be there to pick up the gains. But you can never know when it's going to come. Another commentator Robert Wigglesworth says that a strategy that relies on you hanging on for dear life until the other guy doing factors gives up is not a strategy that most people can do. You're better off just doing market cap. If the gains is only worth 0.4% after costs that's alot of work and then you do need the decades to make it worthwhile doing it? Very daunting.

I'm in Australia and use Avantis ETF's which are domiciled in the U.S so I'm going to lose out on tax drag with the non U.S ETF's. I just wonder if that sucks up the 0.4% premium? I guess at worse I'll just get the market return??

Thanks Felix for your work.

[lorenzo]

Regarding the comment on the basic read for inexperienced people. I started listening to this podcast as totally financially illiterate and took a lot of notes. Do you want me to revisit them and make an introductory booklet for the more basic stuff?

[songshuntan]

only doing a value tilt for more diversification and protection against deep left tail risk

[smachsimo]

Ben, slightly related question: do etf returns we can see in Apple Stocks, Google stocks include fixed income payouts (assuming they are 100% reinvested) or do I need to do the math ?

[giuseppebellomo]

Hi guys amazing job as usual. Is there any video where you explain why you have decided to drop the small cap value from your portfolio allocation?

[WallyZie]

I'm trying to figure out how XBB has a duration of 7.67 years, when the actual duration of the bonds in that ETF span from 0-5 years to over 20 years?

[DerSourceCodeGER]

How come the Youtube episodes are always a few minutes longer than on Spotify?

[mustavogaia]

Just for control, can you bring some non-trolling one star reviews?

[ciaoatutti]

Silly question what is the point of factor investment if returns are more volatile than sp500? Is not value and stability 2 of the factors used to pick stocks?

[johnclukosereloaded]

When im doing dca in an index, i have accepted that i know nothing. Hence stock picking n factor picking is definitely not for me

[muffemod]

Up and it down it goes like the price of coke! 😆😆😆