LQG Seminars

ENCORE - Engaging New Controversial Original Rigorous Entertaining

Alice’s Adventures in Factorland: Three Blunders That Plague Factor Investing

Vitali Kalesnik – Research Affiliates

In this talk Vitali Kalesnik will discuss how and why factor investing has failed to live up to its many promises. Its success has been compromised by three problems that are often underappreciated by investors. First, many investors develop exaggerated expectations about factor performance as a result of data mining, crowding, unrealistic trading cost expectations, and other concerns. Second, for investors using naive risk management tools, factor returns can experience downside shocks far larger than would be expected. Finally, investors are often led to believe their factor portfolio is diversified. Diversification can vanish, however, in certain economic conditions, when factor returns become much more correlated. Factor investing is a powerful tool, but understanding the risks involved is essential before adopting this investment framework.

Vitali Kalesnik, PhD

Partner, Director of Research for Europe – Research Affiliates

Vitali Kalesnik is a partner and senior member of the investment team. He leads research and business strategy in the European region. Previously, Vitali led the Equity Research team and continues to perform general equity-related research.Articles he has co-authored with others have been recognized with two Graham and Dodd Scroll Awards, a Readers’ Financial Analysts Journal Choice Award, a William F. Sharpe Indexing Achievement Award, and a Bernstein Fabozzi/Jacobs Levy Award. His research strengthens and expands Research Affiliates’ products—in particular, RAFI™ Fundamental Index™ strategies—and supports RA’s global tactical asset allocation products.
Vitali earned his PhD in economics from the University of California, Los Angeles, where he was a winner of the UCLA Graduate Division Fellowship for 2001–2005. He speaks fluent English, Russian, and French.

 

 

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