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Overview articles David Blitz

What is factor investing?

15-09-2016 | Insight | David Blitz, PhD, Joop Huij, PhD

Although Factor Investing is rapidly gaining popularity, there are still ongoing debates about this concept. In our view, the key feature of Factor Investing is that asset owners select factors and their weights themselves, rather than leaving this up to their asset managers.

The profitability of low volatility

08-09-2016 | David Blitz, PhD, Milan Vidojevic

Some people argue that the low risk anomaly can be explained by ‘profitability’, an example of a ‘quality’ factor. In our paper ‘The Profitability of Low Volatility’, we challenge this hypothesis and conclude that the low-risk anomaly is a distinct phenomenon, which cannot be attributed to profitability alone.

Year-to-date: Low-volatility evidence dating back to 1873

15-08-2016 | Insight | David Blitz, PhD, Pim van Vliet, PhD

As new historical databases are opening up, there are great opportunities for out-of-sample tests of market anomalies. Research shows that the volatility effect also existed in the 19th century.

From the field: Systematic investing in M&A: an alternative factor premium

03-08-2016 | David Blitz, PhD

Inspired by the recent surge in M&A activity, Deutsche Bank investigates a strategy which systematically invests in stocks that are the target of a publicly announced M&A deal. They find that the strategy has a good historical performance, and conclude that it may be interesting for investors interested in capturing factor premiums.

From the field: Forensic accounting research

20-07-2016 | David Blitz, PhD

Macquarie applies Benford’s law to identify firms which may be manipulating their accounting data, or perhaps even engaging in outright fraud. According to this law, there is a natural frequency of 1 to 9 occurring as the first digit in a number, with the chance of 1 for instance being around 30%, and the chance of 9 less than 5%.

Factor Investing with smart beta indices

06-07-2016 | Research | David Blitz, PhD

Smart beta indices are a popular way of implementing a factor investing strategy. However, research suggests that this may not the best way, as the factor exposure provided by popular smart beta strategies varies greatly and they do not unlock the full potential of factor premiums.

From the field: Accounting-based anomalies in the bond market

22-06-2016 | David Blitz, PhD

This study examines whether over thirty accounting-based fundamental variables known to be related to future stock returns are also effective for predicting future bond returns. The frequency of significant returns to trading strategies based on these anomalies turns out to be similar for the bond and stock markets.

Robeco adds fourth factor Quality to its factor investing strategies

15-06-2016 | Insight | David Blitz, PhD, Joop Huij, PhD, Pim van Vliet, PhD, Simon D. Lansdorp

Investors increasingly decide to allocate strategically to factor premiums such as Value, Momentum and Low-Volatility. Robeco is now incorporating a fourth factor, Quality, in the investment process of its factor funds.

From the field: A critical perspective on ETFs

08-06-2016 | Insight | David Blitz, PhD

ETFs are rapidly gaining popularity, but do they ultimately benefit private investors? Using data from one of the largest brokerages in Germany, the authors in this study find that individual investors using these products do not improve their portfolio performance.

From the field: Do fund flows cause the value and momentum effects?

25-05-2016 | Insight | David Blitz, PhD

In his witty style, James Montier takes a critical look at recently popular investment concepts such as smart beta, risk parity and real assets*. We actually agree a lot with what he is saying.

From the field: Smart beta = Dumb beta + Smart Marketing?

20-04-2016 | David Blitz, PhD

In his witty style, James Montier takes a critical look at recently popular investment concepts such as smart beta, risk parity and real assets*. We actually agree a lot with what he is saying.

New: Factor investing – collected Robeco articles (2nd edition)

11-04-2016 | Insight | David Blitz, PhD, Joop Huij, PhD

The much anticipated ‘Factor Investing – Collected Robeco articles’ (the 2nd edition) is now available. We’re delighted to present this book on factor investing, which brings together ten articles that Robeco researchers have published over recent years.

From the field: What’s driving the value premium?

06-04-2016 | Insight | David Blitz, PhD

The academic literature provides two competing theories on what drives the value premium: exposure to risk factors, or mispricing of securities.

From the field: Institutional investors cause stock return anomalies?

23-03-2016 | Insight | David Blitz, PhD

This study* shows that institutions typically trade on the wrong side of anomalies. For instance, they tend to buy growth stocks and sell value stocks, thereby going directly against the value anomaly.

From the field: Systematic underestimation of mutual fund alphas

09-03-2016 | Insight | David Blitz, PhD

This study argues that because mutual funds often disappear following poor performance, some funds disappear because of bad luck and not because their true alpha is low.

From the field: Characteristics of different low-volatility strategies

17-02-2016 | David Blitz, PhD

A study* by three Blue Sky pension provider researchers (Bastiaan Pluijmers, Imke Hollander and Ramon Tol) together with Dimitris Melas from MSCI compares the characteristics of nine different low-volatility strategies.

Low-volatility evidence dating back to 1873

15-02-2016 | Insight | David Blitz, PhD, Pim van Vliet, PhD

As new historical databases are opening up, there are great opportunities for out-of-sample tests of market anomalies. Research shows that the volatility effect also existed in the 19th century.

Is value trapped?

04-12-2015 | Research | David Blitz, PhD

The poor long-term live performance of the first generation of value indices indicates that capturing the value premium is not easy. This does not mean, however, that the value premium is beyond the reach of investors. We argue that a value premium still exists, but that harvesting it requires an approach that is much more sophisticated than simply following a straightforward value index.

Fama-French 5-factor model: why more is not always better

21-10-2015 | Best read 2015 | David Blitz, PhD, Pim van Vliet, PhD

Fama and French have expanded their original 3-factor model by adding two factors. What do we think of this?

From the field: JP Morgan confirms our findings on momentum strategy

13-10-2015 | Insight | David Blitz, PhD

A recent paper* by JP Morgan (JPM) Quant explores applying a residualization technique to ‘purify’ the momentum signal and reduce the related risks

From the field: Investing for the long run

30-09-2015 | Insight | David Blitz, PhD

Ang and Kjaer argue in a paper* that pro-cyclical behavior and misalignments between asset owners and managers negate the long horizon advantages of long-term investors.

From the Field: Operating performance and the low-volatility anomaly

16-09-2015 | Insight | David Blitz, PhD

A paper confirms that low-volatility stocks earn higher returns than high-volatility stocks in equity markets around the globe, a finding which is consistent with our own work in this area.

From the field: Volatility-scaled momentum

03-09-2015 | Insight | David Blitz, PhD

A paper* suggests scaling a conventional momentum strategy by its 6-month historical realized volatility in order to target a constant risk level. The authors find that this volatility scaling doubles the risk-adjusted performance of a momentum strategy, and significantly reduces drawdowns.

The beauty and the beast of value and momentum investing

22-07-2015 | Research | David Blitz, PhD

We usually focus on how to make a good investment strategy even better, but in recent research we looked at how to make it worse.

From the field: Large-scale factor investing

08-07-2015 | Insight | David Blitz, PhD

A study* by MSCI for the Norwegian Ministry of Finance examines how factor investing can be applied to very large portfolios, such as the EUR 700 bln Norwegian reserve fund.

From the field: Value and momentum profits declining?

24-06-2015 | Insight | David Blitz, PhD

A paper argues that many popular return anomalies have materially diminished in strength and significance over time. Are value and momentum profits declining?

From the field: Ranking better than optimizing?

03-06-2015 | David Blitz, PhD

A paper* compares the performance of low-volatility portfolios constructed by using a ranking methodology versus portfolios constructed with mean/variance optimization.

From the field: Low-volatility anomaly among mutual funds

27-05-2015 | David Blitz, PhD

A paper* argues that size, value, momentum and other factor portfolios might be considered as alternative building blocks for strategic asset allocation, because these offer an attractive risk premium and powerful diversification benefits.

From the field: Factor investing for diversification purposes?

20-05-2015 | David Blitz, PhD

A paper* argues that size, value, momentum and other factor portfolios might be considered as alternative building blocks for strategic asset allocation, because these offer an attractive risk premium and powerful diversification benefits.

From the field: EBITDA/EV the most powerful value measure

11-05-2015 | Insight | David Blitz, PhD

Academics typically define value as the ratio of a company’s book value to market value (B/M), but this is just one of many possible ways to define value.

A good strategy starts with a good design

29-04-2015 | David Blitz, PhD

David Blitz discusses research to improve existing strategies and explains how he designs new ones. “Our mission is to make good strategies even better and to design the next generation.”

Beauty and the beast of low-volatility investing

17-02-2015 | Insight | David Blitz, PhD, Pim van Vliet, PhD, Matthias Hanauer

Usually focusing on how to design the best low-volatility strategy, David Blitz, Matthias Hanauer and Pim van Vliet have set out to construct a very bad low-volatility strategy. Comparing good and bad low-volatility strategies they found very different performance characteristics. Clearly, not all low-volatility stocks are created equal. The results highlight the importance of being selective when investing in low-volatility stocks.

Is rebalancing the source of factor premiums?

12-02-2015 | Research | David Blitz, PhD

Some argue that the mere mechanism of rebalancing increases returns, and that this explains the success of factor investment strategies. Although factor strategies do need rebalancing to maintain their exposures, there are several reasons why it is unlikely that this is their source of added value.

Robeco quant EM equities outperforms generic factor indices

19-01-2015 | Research | David Blitz, PhD, Wilma de Groot, CFA

We have compared the realized performance of our quantitative emerging markets equities (QEME) strategies with the hypothetical performance of recently launched generic factor indices.

Low-Volatility Investing: Collected Robeco Articles

01-01-2015 | Research | David Blitz, PhD, Pim van Vliet, PhD

The second edition of the first and only book to focus on the volatility effect, "Low-Volatility Investing" by David Blitz, PhD, Head Robeco Quantitative Equity Research and Pim van Vliet, PhD, Senior Portfolio Manager, Robeco Conservative Equities, presents our research on low-volatility investing from a number of different angels important to investors.

Low-volatility investing: Expect the unexpected

06-11-2014 | Research | David Blitz, PhD, Pim van Vliet, PhD

Low-volatility stocks are known to lag in rising markets and lose less in falling markets. On average this is true, but is it always the case? Examining the historical evidence we find that unlikely scenarios – both positive and negative - do occur once in a while. Low-volatility investors should therefore not only focus on averages, but consider a broader range of possible outcomes.

What drives the value premium?

16-10-2014 | Research | David Blitz, PhD

The empirical evidence for the presence of a value premium in stock markets is overwhelming. But why does this phenomenon exist? A new white paper examines a popular explanation.

When factors disagree

30-09-2014 | Research | Bart Van der Grient, David Blitz, PhD, Pim van Vliet, PhD

Generic strategies designed to harvest a certain factor premium regularly conflict with other factor premiums. We find that the premiums associated with these strategies tend to shrink, sometimes even to zero, in these periods of factor disagreement. But enhanced factor strategies avoid stocks that are unattractive on other established factors and continue to deliver when generic factor strategies struggle.

Factor investing: why implementation is important

19-09-2014 | Insight | David Blitz, PhD, Joop Huij, PhD

Factor investing is becoming more popular. Professional investors are increasingly considering investing strategically in certain parts of the financial market which realize better risk-adjusted returns over longer periods. The question is: “How can investors best implement this strategy?”

Efficient factor investing strategies - A ‘Sharper’ approach to harvesting factor premiums

27-08-2014 | Research | David Blitz, PhD, Joop Huij, PhD

There is a shift towards allocating to the factor premiums momentum, value and low volatility. However, since common factor indexes are a suboptimal way to harvest factor premiums, this paper shows the improved results of a more sophisticated approach. Factor strategies developed by Robeco lead to higher returns, while lowering the risks, resulting in higher Sharpe ratios.

How Smart is 'Smart Beta' Investing?

05-06-2014 | Research | David Blitz, PhD

Investors increasingly embrace “smart beta” investing, by which we mean passively following an index in which stock weights are not proportional to their market capitalizations, but based on some alternative weighting scheme. Examples include fundamentally-weighted indices and minimum-volatility indices. In this whitepaper we first take a critical look at the pros and cons of smart beta investing in general. After this we successively discuss the most popular types of smart indices that have been introduced in recent years.

The dark side of passive investing

06-05-2014 | Insight | David Blitz, PhD

Passive investing has become increasingly popular. Despite its undeniable appeal, there are also some considerations which should make investors think again about the desirability of a passive approach.

Investment portfolios: take a look under the hood

22-04-2014 | Insight | David Blitz, PhD, Joop Huij, PhD

You would not be pleased if you thought you had the right exposures to factors that drive expected returns, but it turns out you actually have precisely the opposite tilts. This is happening quite often though. Quantitative researcher Joop Huij and head of equity research David Blitz argue that institutional investors should be careful when assessing asset managers.

Strategic Allocation to Commodity Factor Premiums

18-07-2013 | Research | David Blitz, PhD, Wilma de Groot, CFA

Commodities have become less popular for investors. They are wondering if the traditional arguments for investing in commodities – like diversification- still apply. This paper explores a better way to invest: by setting up a commodity factor portfolio

Why is there a volatility effect?

29-05-2013 | Research | David Blitz, PhD, Eric Falkenstein, Ph.D, Pim van Vliet, PhD

Robeco’s David Blitz, Pim van Vliet and author Eric Falkenstein publish their paper ‘Explanations for the Volatility Effect: An Overview Based on the CAPM Assumptions’.

Surprising results of lower volatility equities in emerging markets

01-05-2013 | Research | David Blitz, PhD, Pim van Vliet, PhD

Emerging markets have become increasingly important to equity investors due to their fast growing economies. But what is the relationship between risk and return in these markets? Answer: it is flat or even negative. Empirical results show that the volatility effect - long-term equity returns at distinctly lower downside risk - is significant, robust and distinct.

Factor investing: from theory to practice

21-11-2012 | Insight | David Blitz, PhD

The theoretical returns of factors such as value, low-volatility and momentum are well documented. But how do you translate them into workable strategies? In this interview, David Blitz, Robeco’s Head of Quantitative Equities Research, explains how investor portfolios can benefit from factor investing.

Strategic allocations to factor premiums: the next big thing?

10-07-2012 | Insight | David Blitz, PhD

“Why limit yourself to the equity premium,” asks David Blitz, Head, Robeco Quantitative Equity Research, “when there are systematic factor strategies that outperform market-cap-weighted benchmarks?” Recent research from Robeco looks at how to translate the theory of factor premium investing into practice.

Preface to Low-Volatility Investing

01-05-2012 | Insight | David Blitz, PhD, Pim van Vliet, PhD

We are pleased to present you with this collection of 13 articles on low-volatility investing. The articles included here share two things in common: they all dig into the low-volatility anomaly and they are all written by Robeco researchers.

New innovation for low volatility investing: better prepared for the future

16-03-2012 | Insight | David Blitz, PhD

A new, more forward looking approach to risk in low-volatility equity investing. Head of Quantitative Equities Research David Blitz explains how risk can be reduced.

Another look at the performance of actively managed equity mutual funds

14-02-2012 | Research | David Blitz, PhD, Joop Huij, PhD

In this study we evaluate the performance of actively managed equity mutual funds against a set of passively managed index funds.

Short-term residual reversal

17-08-2011 | Research | David Blitz, PhD, Joop Huij, PhD, Marno Verbeek, Simon D. Lansdorp

A short-term reversal strategy based on residual momentum reduces exposure to systematic factors and results in lower risk and better returns than a conventional momentum strategy.

How to benchmark low-volatility strategies

14-07-2011 | Research | David Blitz, PhD, Pim van Vliet, PhD

What is the best way to measure the performance of a strategy focused on risk-adjusted return? David Blitz and Pim van Vliet answer this question in their article, Benchmarking Low-Volatility Strategies, published in the Journal of Index Investing.

Strategic allocation to premiums in the equity market

01-07-2011 | Research | David Blitz, PhD

An optimal portfolio allocation will have large exposures to value, momentum and low-volatility strategies, according to a study of US equity returns over 40 years.

On the performance of active versus passive emerging markets equities funds

01-07-2011 | Research | David Blitz, PhD, Joop Huij, PhD

In this note we evaluate the performance of active and passive emerging markets equities (EME) funds. In the first section, we investigate if it is possible to identify active EME funds that systematically outperform passive benchmark indexes. This section is based on a more extensive paper by Joop Huij and Thierry Post. In the next section, we examine the performance of passive EME funds, focusing on whether these funds succeed in their objective to closely track the return of a passive benchmark index. This section is based on a more extensive paper by David Blitz and Joop Huij.

Evaluating the performance of global emerging markets equity exchange-traded funds

08-02-2011 | Research | David Blitz, PhD, Joop Huij, PhD

Emerging markets ETFs typically underperform benchmarks by 1% a year and about half of the funds exhibit high tracking errors. With these characteristics, should they be classified as passive strategies?

The volatility effect: lower risk without lower return

17-04-2010 | Research | David Blitz, PhD, Pim van Vliet, PhD

Efficient markets theory has been challenged by the finding that relatively simple investment strategies are found to generate statistically significantly higher returns than the market portfolio.

The volatility effect: lower risk without lower return

17-04-2010 | Research | David Blitz, PhD, Pim van Vliet, PhD

Efficient markets theory has been challenged by the finding that relatively simple investment strategies are found to generate statistically significantly higher returns than the market portfolio. Well-known examples are the value, size and momentum strategies, for which return premiums have been documented in US and international stock markets. Market efficiency is also challenged, however, if some simple investment strategy generates a return similar to that of the market, but at a systematically lower level of risk.

Expenses and dividend taxes affect European index fund and ETF returns

25-01-2010 | Research | David Blitz, PhD, Joop Huij, PhD, Laurens Swinkels

European index funds and exchange-traded funds underperform their benchmarks by 50 to 150 basis points per annum. The explanatory power of dividend withholding taxes as a determinant of this underperformance is at least at par with fund expenses.

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Author

David Blitz, PhD
Head Quantitative Equities Research


Quantitative investing