The Rational Reminder Podcast

Episode 291 - The Quant Winter, and is Canada Pension Plan a Scam?

Feb 8, 2024

Author Robin Wigglesworth joins the podcast to discuss quantitative investing, the private credit trend, and the Canada Pension Plan. They explore the quant winter, value stocks, factor investing, and the history of the bond market. They also provide insights into the benefits and criticisms of the Canada Pension Plan and discuss annuities. The hosts share their upcoming paper, talk about podcast success, financial literacy, and recommend movies and books. They conclude with positive reviews and a discussion on dividend investing.

01:22:36

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Episode guests

Robin Wigglesworth

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Quick takeaways

Despite criticisms, CPP provides a guaranteed indexed pension for life, ensuring a steady income stream during retirement.

Opting out of CPP and relying on personal savings and investments can be risky, as many Canadians struggle to save adequately.

The enhanced CPP increases the replacement rate to 33% of earnings, providing a greater source of retirement income for Canadians.

Deep dives

CPP: A Lifeline for Retirement

CPP is a contributory plan designed to address economic instability for retirees. The program replaces 25% of earnings up to a certain limit and works as a forced savings program for Canadians. Despite criticisms of the program, statistics show that Canadians struggle with saving for retirement. The average Canadian saves only 6% of their disposable income per year, and only 33% of Canadians over 50 feel their income is high enough to save at all. CPP provides a guaranteed indexed pension for life, ensuring a steady income stream during retirement. Delaying taking CPP benefits can also lead to higher starting amounts and the power of compounding. Opting out of CPP and relying on personal savings and investments can be risky, as many Canadians struggle to save adequately. The recent enhancements to CPP will increase the replacement rate to 33%, providing a better safety net for retirees. CPP acts as a filler in maintaining a basic minimum level of indexed retirement income, and will continue to be a crucial component of retirement planning for many Canadians.

The Importance of CPP and RSP for Retirement Income

01:22

Quality Over Quantity in Reading

01:15

Introduction

2min

Exploring Complexity and Annuities

3min

Quant Investing and Systematic Strategies

15min

The End of the Quant Winter and the Future of Value Stocks

6min

Noisiness in Factor Data and the Future of Factor Investing

14min

Exploring the History of the Bond Market

2min

The Benefits and Criticisms of the Canadian Pension Plan (CPP)

19min

Upcoming paper, discussion on annuities, and previous guest

4min

Discussion on Podcast Success, Financial Literacy, and Movies

2min

10.

Television Viewing, Skiing, and Book Recommendations

4min

11.

Positive Reviews and Dividend Investing

12min

Are you ready for a deep dive into quantitative investing, the private credit trend, and the Canada Pension Plan (CPP)? Then this episode is for you! Joining us today is Robin Wigglesworth, The Financial Times’ global finance correspondent, and author of Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever, a groundbreaking book about the past, present, and future of passive investing. We talk with Robin about quantitative investing and the ideas he lays out in his article ‘A Quant Winter’s Tale’, before hearing his insights on the private credit trend and his intriguing new book titled Bonds, all about the history of the bond market. Today’s episode also features our Mark to Market segment, where Mark McGrath joins us to talk about the Canada Pension Plan (CPP), providing a comprehensive overview of its inner workings, his response to the criticisms levelled against it, and why he believes it’s of huge benefit to a great many Canadians. Next, we take a look back at our conversation with Alexandra Macqueen on annuities before sharing our thoughts on its relevance to today’s discussion and why it’s worth revisiting. Be sure to stay tuned for our after-show segment where we share our book, blog, and viewing recommendations, plus our favourite reviews, followed by a sneak peek of some of the exciting guests we have coming up. Press play now for a deep dive into quant investing, the hype around private credit, saving for retirement, and a whole lot more!

Key Points From This Episode:

An introduction to today’s guest, Robin Wigglesworth, followed by his breakdown of quantitative investing. (0:04:05)
Theories on what happened to factor investing between 2018 and 2020; what is meant by the quant winter and why we are now in a quant summer. (0:09:59)
How investor sentiment regarding factor investing changed after the quant winter and how the algorithm aversion phenomenon impacted it. (0:15:13)
The collapse of value; the impact of the COVID-19 pandemic (plus its role in the quant winter), and where we are right now. (0:20:14)
An overview of quant investing products, and why many of them are too expensive. (0:23:24)
Breaking down the noisy-ness in factor data and Robin’s predictions for where factor investing will go from here. (0:25:51)
Unpacking the hype around private credit: indications that it’s in a bubble, how it could impact broader trends, and who stands to benefit most. (0:36:36)
We hear about the fascinating book that Robin is currently working on about the history of the bond market. (0:40:22)
Our Mark to Market segment on the complicated (and divisive) Canada Pension Plan (CPP); how it works, its profound benefits, and responding to the criticism it has received. (0:41:50)
A look back at our conversation with Alexandra Macqueen on annuities and how it links in with today’s discussion. (01:01:31)
Our after-show section: an update on the Money Scope Podcast, reading recommendations, reviews from our listeners, and some of the incredible guests we have coming up! (01:04:33)