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Factors, Funds and Performance Chasing
Author: Max Pacella | Category: White Paper
In this white paper, we provide empirical evidence for the mean reverting nature of outperformance in both Aussie equities and Aussie fixed income. We also discuss the role of investment styles and market factors in driving manager returns and how understanding these factors can lead to a more comprehensive evaluation of a manager’s true performance.
Alpha, often touted as a measure of investment success, is simply the excess return of a portfolio over its benchmark. However, relying solely on this “naïve alpha” fails to capture the true outperformance of fund managers. Research conducted by Innova reveals that naïve alpha is not persistent and tends to revert to an average over time. This white paper explores the dangers of simply chasing naïve alpha and emphasises the importance of considering market factors and investment styles when evaluating fund performance. By understanding the cyclicality of these factors, investors can make more informed decisions and build robust, long-term portfolios.
Infrastructure such as toll roads and airports play a central role keeping economies running. These assets are also playing an increasingly central role in super fund portfolios, with investors attracted by the asset class’s attractive risk-return characteristics. They’re typically large, capital-intensive and quasi-monopolistic assets, which creates a rare mix of relatively high yet defensive returns. But […]
Throughout our business’ existence, we have frequently reminded people that Markets and Economies are not the same thing. The reason for reminding readers is that mainstream media conflate the two, implying that the ability to divine the economic outlook can predict market performance (usually equity market performance). The flip side to this is that markets […]
Innova is pleased to announce that after two years of collaboration on a number of investment research projects, Mike Aked has agreed to join Innova’s Investment Research Committee. Mike brings with him an impressive track record of investment and research experience at SunSuper, Global Head of Asset Allocation with Research Affiliates responsible for the management […]
Recent headlines have been dominated by the resurgence of the Japanese economy, marked by a significant influx of capital over the past six months to one year. This shift in sentiment can be attributed to the implementation of corporate governance reforms, which are expected to enhance shareholder value, improve return on invested capital (ROIC), and […]
After a period of near-zero interest rates and prevalence of the ‘There is No Alternative’ (TINA) narrative around owning equities, multi-asset investors can finally rejoice that there are multiple alternatives to broad developed market equities. Particularly after 2022, one of the worst periods on record for bonds and a period of shock for many […]
The most recent US inflation numbers beat market expectations, coming in at 4.9% – a meaningful decline from its peak of nearly 9.0% in June 2022, and yet still meaningfully above the 2% target. With energy prices at pre-Russia/Ukraine levels, global supply chain pressures meaningfully eased from the COVID lockdowns (see the chart below), what […]
The belief that bonds offer protection when equity markets fall is not always accurate, the reality is far more nuanced as many investors painfully found when interest rates began their rapid rise last May. While bonds and equities spent more time correlated than non-correlated in the last 100 years, the correlation between the two asset […]
Not all risks to a portfolio have to be unseen market forces, or mathematical concepts born of complex financial engineering. Some are very visible and plain for all to see. One such risk is the near-and-present danger of the US ‘debt ceiling’ being hit, the so-called ‘x-date’ when the US Government must either raise the […]
If there’s one thing which has characterised markets during April, it’s been a lack of equity volatility. This is not just a psychological bias after coming off a US regional banking crisis last month, the numbers confirm it as well – risky assets have been acting ‘boring’, to the extent that an avid lover of […]