This week, we speak with Chris Brightman, chief investment officer and partner at Research Affiliates (RAFI). He was a member of the Investment Fund for Foundations (TIFF), the Virginia Retirement System, the University of Virginia Investment Management Company, and Strategic Investment Group. Previously, Brightman ran money for the University of Virginia endowment.
As he explains. “Smart Beta” uses principles underlying factor investing, and allows for simple, transparent and inexpensive index strategies that are not market-cap weighted. He quotes Jack Bogle in stating most investors are better off with a simple portfolio of broad indices; however, when we look at what investors actually do, they engage in bad behavior that leads to a 200 basis point annual under-performance versus the broad .
However, he believes that Fundamental Index is a simple elegant way to pursue a contrarian rebalancing contrarian trading approach that is more akin to cap-weighted indices than expensive active stock selection. The challenge is to keep emotions out of the process of ownership and rebalancing.
We discuss the current under-performance of value stocks, and how cyclical they tend to be. Every long term study around the world has confirmed that Value outperforms Growth historically. Where does Value’s outperformance comes? Brightman believes it is a little bit of the assumption of additional risk, as well as a behavioral element.
His favorite books are here; A transcript of our conversation is available here.
You can stream/download the full conversation, including the podcast extras on Apple iTunes, Bloomberg, Spotify, Google Podcasts, Overcast, and Stitcher. All of our earlier podcasts on your favorite hosts can be found here.
Next week, we speak with Andrew Ang, director of BlackRock’s $210 billion dollar factor strategies group. The former Professor of Finance at Columbia Business School is the author of Asset Management: A Systematic Approach to Factor Investing.
Chris Brightman’s favorite books
The Attention Merchants: The Epic Scramble to Get Inside Our Heads by Tim Wu
The Myth of Capitalism: Monopolies and the Death of Competition by Jonathan Tepper
Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change by Edmund Phelps
Islands in the Net by Bruce Sterling
The Hacker Crackdown by Bruce Sterling