Latest news with #ResearchAffiliates
Bloomberg
21-07-2025
- Business
- Bloomberg
Rob Arnott on Where to Find Market Bargains
Rob Arnott, Research Affiliates Founder & Chairman, tells Open Interest that this is an opportunity rich environment. And he sees bargains in non-US equities. (Source: Bloomberg)
Wall Street Journal
17-06-2025
- Business
- Wall Street Journal
Rob Arnott's Firm Says the Time Is Finally Right for ‘Smart Beta'
Rob Arnott used to argue that the popularity of 'smart beta' investing strategies often made the stocks they favored too expensive to actually buy. Now, his firm says the time is right. Analysts with Arnott's firm Research Affiliates now say there is value in smart beta, an investing approach that seeks to beat standard index funds' returns by allocating money based on factors that have shown a relationship over time with stock performance—such as sales growth, dividend payments or volatility.
Yahoo
06-06-2025
- Business
- Yahoo
Passive ETFs Hit Tipping Point as Dominance Brings New Risks
Exchange-traded funds and other passive investing vehicles have crossed a historic threshold, now commanding more than half of U.S. equity fund assets as investors continue their exodus from active management. But this dominance is creating unintended consequences that could reshape how markets function. According to a June 2025 Research Affiliates report, passive capitalization-weighted index funds now surpass active management in aggregate investor allocations. The shift has been dramatic: Global ETF net inflows reached nearly $2 trillion in 2024, according to an ETF Global Insights report, while investors withdrew a record $450 billion from actively managed funds, the Financial Times has reported. Yet this migration toward low-cost, transparent investing is producing structural changes that extend far beyond simple cost savings. According to the report, the dominance of passive investing is undermining the diversification benefits that made these products attractive in the first place, while potentially amplifying systemic risks as trillions of dollars move in coordinated, momentum-driven patterns that ignore fundamental company values. The Research Affiliates analysis shows that stocks with high passive ownership display rising correlations with market movements, while actively held stocks have shown declining correlations over time. This divergence reflects what the report calls "coordinated price action rather than informed price discovery." ETF trade execution amplifies these effects, according to the report. ETFs simultaneously deploy capital across hundreds of stocks during creations and redemptions, exerting indiscriminate price pressure across entire portfolios regardless of individual company fundamentals. The mechanics of passive investing create what Research Affiliates calls a "single, coordinated trade" as flows increase. When investors allocate money to retirement accounts or ETFs, those funds mechanically purchase stocks based solely on market capitalization weights, not company-specific information. According to an S&P report cited in the research, only one-third of active U.S. equity managers outperformed their benchmarks over the past 15 years. Combined with Schwab data showing 0.09% asset-weighted average fees for passive funds versus 0.64% for active funds, the performance and cost advantages have driven the structural reallocation. The report warns that concentrated ownership creates vulnerability to synchronized liquidations. Large institutions systematically avoid buying when index funds are selling, undermining diversification and potentially causing more frequent volatility spikes. During the dot-com bubble, cap-weighted indices overweighted inflated technology stocks, devastating returns when the bubble burst, according to Bloomberg data cited in the report. From 1995 through 2005, the S&P 500 generated 11.4% annualized returns while the equal-weighted S&P 500 returned 13.6%. The Research Affiliates report suggests that rebalancing strategies using non-price-based anchor weights may mitigate flow-driven distortions. This contrarian rebalancing approach has historically captured returns when price distortions eventually correct, according to the firm's | © Copyright 2025 All rights reserved Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
20-05-2025
- Business
- Yahoo
2 charts show why small-cap stocks are in for a monster decade
Small-cap stocks are poised for strong growth over the next decade, says Que Nguyen. Valuations of small-cap stocks are historically low compared to large- and mid-caps. Investors can access small-cap opportunities through ETFs like those from Schwab and iShares. Small-cap stocks are in for a monster decade ahead, according to Research Affiliates Chief Investment Officer Que Nguyen. Why? The two charts below paint the picture pretty clearly: both on a cap-weighted and equal-weight basis, the valuations of small-cap stocks relative to large- and mid-caps are incredibly low by historical standards. The current valuation gap rivals those seen during the dot-com bubble and the Great Recession. "The potential for mean reversion to narrow this valuation gap creates an opportunity for small caps to outperform the narrowly focused large-cap indices over the next decade," Nguyen wrote in a recent client note. She added: "At the end of 2024, the valuation discount of U.S. small caps relative to a portfolio of U.S. large- and mid-cap stocks stood at -40%. This is a deep discount relative to the historical median level of -5%, standing in the bottom 4th percentile since 1990." In simpler terms, small-cap stocks — generally considered as those with market caps between $250 million and $2 billion — are rarely ever this cheap compared to their larger counterparts. And as the charts above show, they always bounce back strongly. Nguyen sees small-cap indexes, on average, beating large-cap returns by about 4% annually over the coming decade. When screened for momentum, quality, and value, the small-cap trade should do even better, she said. Since 1990, the cheapest quintile of small-cap stocks has returned 12.4% per year. Filtered for quality and momentum, they've returned 13.9% annually. Small-cap stocks have been unloved in recent decades as mega-caps have outperformed. But as the US retreats from the rest of the world and the US exceptionalism trade fades, Nguyen said small-caps could be in a better position to drive innovation. "As these very, very large behemoths become less dominant or find the system less welcoming to their dominance, it's going to open up a lot of opportunities for smaller players," she told BI in an interview on Friday. "We can't continue to have an innovative economy if small players can't succeed," she said. Still, small caps tend to be more volatile and sensitive to downturns in the domestic economy, making careful screening essential. Investors can gain broad exposure to the small-cap trade through funds like the Schwab Fundamental US Small Company ETF (FNDA), the iShares S&P Small-Cap 600 Value ETF (IJS), and the Royce Quant Small-Cap Quality Value ETF (SQLV). Read the original article on Business Insider Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
20-05-2025
- Business
- Yahoo
2 charts show why small-cap stocks are in for a monster decade
Small-cap stocks are poised for strong growth over the next decade, says Que Nguyen. Valuations of small-cap stocks are historically low compared to large- and mid-caps. Investors can access small-cap opportunities through ETFs like those from Schwab and iShares. Small-cap stocks are in for a monster decade ahead, according to Research Affiliates Chief Investment Officer Que Nguyen. Why? The two charts below paint the picture pretty clearly: both on a cap-weighted and equal-weight basis, the valuations of small-cap stocks relative to large- and mid-caps are incredibly low by historical standards. The current valuation gap rivals those seen during the dot-com bubble and the Great Recession. "The potential for mean reversion to narrow this valuation gap creates an opportunity for small caps to outperform the narrowly focused large-cap indices over the next decade," Nguyen wrote in a recent client note. She added: "At the end of 2024, the valuation discount of U.S. small caps relative to a portfolio of U.S. large- and mid-cap stocks stood at -40%. This is a deep discount relative to the historical median level of -5%, standing in the bottom 4th percentile since 1990." In simpler terms, small-cap stocks — generally considered as those with market caps between $250 million and $2 billion — are rarely ever this cheap compared to their larger counterparts. And as the charts above show, they always bounce back strongly. Nguyen sees small-cap indexes, on average, beating large-cap returns by about 4% annually over the coming decade. When screened for momentum, quality, and value, the small-cap trade should do even better, she said. Since 1990, the cheapest quintile of small-cap stocks has returned 12.4% per year. Filtered for quality and momentum, they've returned 13.9% annually. Small-cap stocks have been unloved in recent decades as mega-caps have outperformed. But as the US retreats from the rest of the world and the US exceptionalism trade fades, Nguyen said small-caps could be in a better position to drive innovation. "As these very, very large behemoths become less dominant or find the system less welcoming to their dominance, it's going to open up a lot of opportunities for smaller players," she told BI in an interview on Friday. "We can't continue to have an innovative economy if small players can't succeed," she said. Still, small caps tend to be more volatile and sensitive to downturns in the domestic economy, making careful screening essential. Investors can gain broad exposure to the small-cap trade through funds like the Schwab Fundamental US Small Company ETF (FNDA), the iShares S&P Small-Cap 600 Value ETF (IJS), and the Royce Quant Small-Cap Quality Value ETF (SQLV). Read the original article on Business Insider Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
