There are arguments in favor of traditional passive index funds: they offer low fees, liquidity, and broad diversification. They match market performance, have negligible trading costs and tracking error, and they beat most active managers most of the time.

On the other side, there are also factor strategies gaining popularity for a reason: they are transparent, offer exposure to widely agreed-upon sources of expected return, have low management costs, and, with proper design, reasonable transaction costs.

In this episode, I am honored to speak to Vitali Kalesnik, a recognized expert in factor investing. He’s a partner and Director of Research at Research Affiliates. Vitali explains the details related to factor investing. You will learn, among other things, what it is, what the associated risks are, and how to properly use them in practice.

In this episode

• What is the difference between passive and active investing?
• Why would investors want something more on top of the traditional passive index funds/ETFs?
• What is factor investing?
• What investment vehicle is the easiest/best to use for the average investor to have exposure to factors?
• What set of characteristics would constitute evidence of an actual factor (so that it’s not data-mined or data-snooped)?
• What are the factors with the most robust returns?
• What is the minimum investment horizon for an investor who wants to use factors?
• Should we time factor strategies, and if so — how to do it right?
• Is there are a difference between smart beta strategies and factor tilts?
• How do stocks become cheap or expensive? What causes misprices creating value premium?
• Shall we look now at value stocks as a bargain?
• Which value stocks have the brightest future? 

Useful links

• Vitali’s bio
• Research Affiliates
  • Smart Beta Interactive
  • Asset Allocation Interactive
  • Strategies
  • Publications