From that article (written in 2020):
In four out of the last five years, small value stocks underperformed large cap growth stocks. The urgent question is whether the small cap value premium will persist or reverse
If it’s a “risk premium” then it shouldn’t go away and periods of underperformance should be expected from any risk premium. that’s the nature of any investment risk.
If it’s behavioural and people change their behaviour then yes, of course it could go away.
We think that there are three basic views of investing in the “stock market”
1) market capitalisation- this is a relevant portfolio in any asset pricing model and in aggregate it’s what we all collectively hold. It’s cheap passive investing.
The key here for many older people to consider is Irish tax.
Investment funds in Ireland are subject to a flat rate of tax of 41% on both income and gains yet many retired people in Ireland pay little or no income tax and capital gains at a rate of 33% or nil if they have capital losses.
So the right approach here simply isn’t going to be available from an Irish retail investment product like you will be sold by your high street bank.
2) Smart beta or factor investing says for example smaller companies are more risky than larger companies and have a higher expected return as compensation. These factors seem to generally outperform over long time periods of several decades. We introduced these strategies from Dimensional in the 2008 and literally provided seed capital for a fund launch. We have never claimed that we were the first company to use Vanguard in Ireland.
Dimensional became popular with Irish brokers for a few years as it was something new and shiny to sell but that coincided with a period of sustained underperformance and we know many of the same brokers then switched out into different strategies broadly at exactly the wrong time for their clients.
If you have a long time horizon and can resist the temptation to bail out you can obtain good results. But a value strategy loads you up with distressed companies like Banks and Oil companies which leads us to our last view of the world
3) Sustainable world. We have promoted This view of investing in Ireland since 1997 and it is now our default position.
All financial institutions and advisers in the EU are now required to consider Environmental, Social and Governance (ESG) impact of investing.
We go beyond simply excluding companies because they are “bad” and seek investments which try to have a positive impact.
Other investment options like Structured products, loan notes, tracker bonds, hedge funds, absolute return funds, many forms of active management (stock picking and market timing etc) are largely debunked in the academic literature
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