Evidence-based, long-term, holistic investment plan personalized for each individual’s unique circumstances.
The Evidence-based Approach
- Value – Nobel Laureate Eugene Fama and Kenneth French famously introduced to the world through the Fama-French model the size and value factors. Value is the suggestion that inexpensive stocks should outperform more expensive ones over the long term. As you can see below, “cheap” stocks tend to outperform “expensive” stocks by close to 5%.
- Size – The second factor to arise from Fama-French’s research is the size factor phenomenon. By investing in smaller companies as defined by market capitalization, a return premium emerges. Often, this is theorized that due to their increased volatility and other risks such as the increased risk of bankruptcy, that investors demand an additional rate of compensation for said risks.
- Momentum – Famously publicized in 1993 by Narasimhan Jegadeesh and Sheridan Titman, momentum is the factor emerging from the idea that stocks that have done well in the medium term, continue to do so. Stocks that have lagged in the medium term, tend to lag.
- Profitability – Robert Novy-Marx studies found that tilting a portfolio to companies with higher profitability ratios increased their relative performance. Especially so alongside the value premium.
- Quality – Another evident factor arising from academia, quality affirms the age-old belief that seeking out higher-quality companies from a financial statement approach outperform over the long-term. Higher quality companies exhibit higher earnings quality or lower accruals.
- Defensive – Defensive, low-volatility, or also commonly known as smart beta. Each interchangeable but exhibit the factor approach of owning stocks that have lower risk or volatility in the market, historically results in higher risk-adjusted returns.