Why a Stock Peak Isn’t a Cliff

Many investors may think a market high is a signal stocks are overvalued or have reached a ceiling. But they may be surprised to find out that the average returns for the S&P 500 Index one, three, and five years after a new market high are similar to the average returns for the index over...

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Demystifying Systematic Fixed Income Investing

Systematic, or factor-based, investing has become quite common in equities. Investor adoption in fixed income has lagged, at least when measured by the assets under management (AUM) in mutual funds and ETFs. At the end of 2020, $1.35 trillion in equity fund AUM1 was categorized as strategic beta by Morningstar. By contrast, just $14.36 billion of...

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Is $22 Trillion a Tipping Point?

As of the end of 2020, the US debt held by the public amounted to $22 trillion, an increase of approximately $5 trillion from the year before and well over double the level from a decade ago.1 This trend may be worrisome for investors expecting an adverse impact on stock returns once the bill for all...

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The Noise in Short-Term Performance

As a parent of identical twins, I’m well versed in the phenomenon of two lookalike entities exhibiting vast dispersion in behavior at any given time. So, when I encounter substantial short-term performance differences between investment strategies in the same asset class, I am disinclined to infer one is better than the other without more information.1...

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CAPE FEAR: Should Investors Be Concerned With Market Valuations?

Investors often look for signals indicating whether it’s a good time to get into or out of the market. Market valuation measures, such as the cyclically adjusted price-to-earnings (CAPE) ratio1 of Campbell and Shiller (1998), are frequently portrayed as indicators to assess whether the stock market’s expected return has increased or decreased. Despite the attention market...

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Myth-Busting with Momentum: How to Pursue the Premium

Nearly 30 years after its formal discovery,1 the appeal of stock price momentum2 remains in the eye of the beholder. Some see its outsize historical premium, 9.1% per year in the US,3 as validation for investing in momentum-focused strategies. Others point to the extreme turnover and occasional catastrophic outcomes4 for the premium as insurmountable hurdles to real-world implementation....

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How TIPS Can Boost Retirement Readiness

The recent surge in inflation shows how the cost of goods and services can increase quickly and unexpectedly. To help plan participants maintain a stable standard of living in retirement, plan sponsors can provide an investment solution designed to accumulate a stream of inflation-protected income using Treasury Inflation-Protected Securities (TIPS). As recent Dimensional research confirms, TIPS are...

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Do ESG Ratings Get High Marks?

The volume of sustainability data is growing fast. Greenhouse gas emissions, for example, are now reported or estimated for almost all public companies. This is great news for investors who want to allocate to companies based on their carbon footprints. Beyond emissions data, the increase in broader company sustainability information can present meaningful challenges. For...

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The Tax Proposal Merry-Go-Round 2.0

On Thursday afternoon (October 28, 2021), The House Rules Committee released a draft of the reconciliation text outlining the framework for what was President Biden’s original $3.5 trillion social safety net proposal. As many of you saw, I released an article on September 14th titled Navigating The Proposed Tax Legislation, in which I outlined The...

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Reading Fed Tea Leaves? Watch Market Prices Instead

Fed watching is once again one of the markets’ favorite pastimes. Fed officials continue to signal that they would favor tapering of bond purchases in 2021, in line with recent announcements from the European Central Bank. When and how remain to be seen. With ample speculation about the Fed, unemployment, and inflation, it might be...

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