Wes Gray, founder of Alpha Architect and ETF Architect, shares his lessons from growing his businesses and discusses the rapid growth of ETFs. He talks about the struggles of value investing, identifying when a factor no longer works, and the pros and cons of sector neutral value investing.
Wes Gray discusses the rapid growth and demand for ETF Architect, highlighting the opportunities it presents for investors in the ETF business.
The importance of maintaining focus, setting clear objectives, and executing consistently to achieve long-term success in building a business.
The significance of simplifying investment models and effectively communicating investment strategies to improve investor engagement, especially during challenging times.
Deep dives
The Growth of ETF Architect and the ETF Business Landscape
In this podcast episode, Wes Grady from Alpha Architect and ETF Architect discusses the rapid growth and demand for ETF Architect, a firm that helps advisors and managers launch ETFs or convert existing funds to ETFs. Wes shares insights into the developments in the ETF business and the opportunities it presents for investors. He also touches on the new strategies being run in an ETF wrapper that may be appealing to some investors.
The Importance of Long-Term Focus and Avoiding Distractions
During the episode, the speakers emphasize the importance of maintaining a long-term focus and avoiding distractions, particularly in the early stages of building a business. They reflect on their personal experience of lacking focus and being easily swayed by new ideas or concepts, which resulted in inefficiency and prevented scalability. They highlight the benefits of determining clear objectives, focusing on core business lines, and executing consistently to achieve long-term success.
The Significance of Value and Momentum in Factor Investing
The podcast delves into the discussion of value and momentum in factor investing. While there had been periods of underperformance for value strategies in recent years, the speakers emphasize that such underperformance is not uncommon and is part of the long-term nature of factor investing. They discuss the importance of looking beyond short-term performance and taking a data-driven approach. The speakers express their faith in the long-term significance of value and momentum factors, highlighting their role in delivering alpha over time.
Simplicity and Communication in Investment Models
The podcast episode emphasizes the importance of simplifying investment models instead of making them more complex. The speaker discusses the key differences between simplicity and complexity and the benefits of simplifying models. They highlight the importance of communication and the ability to effectively convey investment strategies to investors. Making strategies simpler and easier to understand improves the likelihood of investors sticking with the program during difficult times.
Value and Size in Small Cap Investing
The podcast explores the relationship between value and size in small cap investing. The speaker challenges the idea that size plays a significant role in the performance of value strategies in the small cap space. They argue that the performance of value in small cap portfolios is not driven by size, but rather the value characteristic itself. The speaker discusses the importance of controlling for the price-to-earnings ratio (PE) and emphasizes that size only matters to the extent that it allows access to cheaper stocks. Additionally, the speaker highlights the importance of evaluating the value-ness of stocks in portfolios rather than relying solely on size.
In this episode, we are joined by Wes Gray, founder of Alpha Architect and ETF Architect. We cover his biggest lessons from growing the businesses from a startup to over $5 billion in assets. We also discuss the rapid growth of ETFs and ETF Architect's mission to help firms launch them. And we get Wes' take on a variety of issues related to factor investing including the struggles of value in the past decade, how to tell when a factor no longer works, the evolution of his strategies over time and the pros and cons of sector neutral value investing.
We hope you enjoy the discussion.
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