Five Factor Investing with ETFs (EP.129)

Dec 17, 2020

Delving into the theory behind their new model ETF portfolios, the hosts explore market assets pricing and historical views. They address the systematic risk factors in the Fama-French Five-Factor Model, discussing factor exposure through ETFs. Insights on portfolio distribution and premium expectations are shared, along with reflections on factor-loaded indexes and bad financial advice.

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Intro

00:00 • 2min

Community Board Updates and Merchandise Mention

01:45 • 2min

Exploring the Almanac of a Renowned Entrepreneur and Investor

03:21 • 6min

Financial Data Points, ETF Market Growth, and Tony Shea's Passing

08:55 • 3min

Evolution of Asset Pricing Models and Factor Premiums

12:00 • 28min

Exploring Factor Investing with ETFs

39:40 • 15min

Exploring Factor Investing and ETF Strategy for Canadian Investors

54:43 • 14min

After months of research, number-crunching, and receiving listener requests on the subject, today’s episode is devoted to introducing our new model ETF portfolios — which promise to offer a smoother ride to getting reliable returns. We open our conversation with a financial news roundup and by touching on our book of the week. We then dive into the theory behind our model by first exploring how market assets are priced. We discuss historical views on asset pricing models before looking at what academia has done to overcome challenges to the idea of market efficiency. Host Benjamin Felix methodically shows how our model addresses the five systematic risk factors that are included in the Fama-French Five-Factor Model. From emerging markets to stock size, we share insights into what our model accounts for and how this should impact your portfolio distribution and premium expectations. After reflecting on how factor-loaded indexes get higher returns without extra risk, we talk about the ETFs that we use for factor exposure, as well as how you can apply our findings to your portfolio. We round-off today’s show by chatting about the latest bad financial advice. Tune in to hear more about our findings in this, our last episode of 2020.

Key Points From This Episode:

We share community and listener feedback and what you can expect from the show in 2021. [0:00:15]
Hear about The Almanack of Naval Ravikant, our book of the week. [0:04:35]
Relooking at the drive towards personalized portfolios. [0:07:28]
Insights into S&P 500 stocks having a greater dividend yield than the US Treasury. [0:08:52]
How ETFs are coming to dominate Wall Street. [0:09:56]
Dying without a will; exploring the case of Zappos CEO Tony Hsieh. [0:11:05]
Introducing today’s portfolio topic — our new model portfolios, and why index funds make sense. [0:12:29]
The risks that inform how the market prices assets and your expected returns. [0:18:00]
How academics have addressed the joint hypothesis and the brilliance of the Fama-French Five-Factor Model. [0:22:18]
The predictive power of the Fama-French Five-Factor Model. [0:30:25]
Challenges to the Fama-French Model, what it accounts for, and how links to our new model portfolios. [0:31:20]
How our model weighs the value of different markets and stock sizes. [0:36:52]
Comparing the returns of a factor-loaded index with the US total market index. [0:40:44]
Answering the question — what’s special about dividend growth investing? [0:42:15]
The role of persistence in being a factor-led investor. [0:45:50]
How our model increases the reliability of your investing outcomes compared to historical data. [0:50:10]
How to apply all the information presented in this episode. [0:54:38]
Hear about the ETFs that we use for our factor exposure. [0:58:10]
Details on when you can access our upcoming paper. [01:02:25]
This week’s bad financial advice; invest in the right region to drive performance. [01:04:05]