BROADCASTS.com

b'In Episode 121, we welcome fellow quant, Pim van Vliet. If you\\u2019re a low-vol investor, or having been wanting to learn more about low-vol, this is the episode for you.\\nMeb dives straight in, opening with a quote from Pim: "The low-volatility effect is perhaps the largest anomaly in finance, challenging the basic trade-off between risk and return, as higher risk does not lead to higher returns. Still, it remains one of the least utilized factor premiums in financial markets." He asks Pim to explain.\\nPim tell us that low-volatility is the biggest anomaly of them all. People have trouble embracing the concept. We\\u2019ve been trained to believe that higher risk should be rewarded with higher returns, but Pim walks us through some counterarguments. He goes on to explain that CAPM (Capital Asset Pricing Model) is great in theory, yet bad at describing reality. He tells us that \\u201cthe reality is high risk stocks earn low returns.\\u201d\\nNext, Meb brings up a paper Pim wrote called \\u201cThe Volatility Effect\\u201d and asks Pim to walk us through it. Pim tells us one of the broad takeaways is that low-vol works cross borders (unlike some other factors). It\\u2019s not just effective in the U.S. \\u2013 it\\u2019s also been proven out in Europe and Japan. In addition, this alpha seems to be getting stronger now rather than waning as have other factors when their visibility has increased.\\nMeb asks about Rob Arnott and factor-timing/factor valuations. Does factor valuation matter?\\nPim agrees with Rob in that valuation does matter. If you only look at low-vol, you might end up buying \\u201cexpensive defensive\\u201d. If so, then yes, your expected returns will be lower. That\\u2019s why Pim includes a value filter. He looks at \\u201cmulti-factor defensive\\u201d. Pim mentions Cliff Asness and notes that he likes incorporating momentum into his approach as well.\\xa0\\nThe conversation bounces around a bit: where is Pim finding opportunities around the world now\\u2026 additional details on how low-vol works across countries, sectors, and asset classes\\u2026 and how low-vol complements a CAPE approach, pointing toward some effective defensive market strategies.\\nNext, Meb asks about potential biases. For instance, if you focus on low-vol, could that mean you\\u2019ll end up with a basket of, say, utility stocks and no tech? Pim tells us that, yes, if you focus purely on low-vol, you could get more sector and country effect. But he goes on to tell us how investors might mitigate that.\\nThere\\u2019s plenty more in this fun, quant-driven episode \\u2013 a discuss of the definition of risk (volatility versus permanent loss of capital)\\u2026 factor fishing and data mining\\u2026 how low-vol works from a portfolio perspective\\u2026 Pim\\u2019s forecast of the future\\u2026 and Pim\\u2019s most memorable trade. This is a great story, highlighting how an early loss delivered such a powerful learning lesson, that it probably ended up making Pim money in the long run.\\nGet all the details in Episode 121.\\nLearn more about your ad choices. Visit megaphone.fm/adchoices'