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What is evidence-based investing?

  • To be able to define evidence-based investing
  • To be able to identify the reasons for the performance of evidence-based investing
  • To explain the significance of value investing
CPD
Approx.30min

Nothing is perfect

Advisers will be more than familiar with the investment industry’s mantra: Past performance is not a reliable guide to future returns.

Advocates of harnessing academic research to construct portfolios agree. Nobody can predict the future, and it is certainly true that small caps, value and low volatility have underperformed recently.

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But the long outperformance of these market segments has been established through rigorous studies across markets and over time. Equally importantly, there are rational, consistent explanations for each finding.

Harvesting market returns

Importantly, an investment approach that hooks into the returns generated by the global economic engine has consistently outperformed its actively managed peer group.

Evidence-based investing is a long-term approach, but the consistency and explainability of returns, and the low costs of implementation through index funds and exchange-traded funds, make it a suitable and attractive option for many clients.

Mark Northway is an investment manager at Sparrows Capital

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. Which of the following is NOT typically used by active investment managers in their stock-picking process?

  2. Evidence-based investing seeks to trade stocks daily, true or false?

  3. What must neglected companies do to attract capital?

  4. What does eliminating survivorship bias from data do?

  5. The value factor has produced a long-term premium, according to the author, true or false?

  6. What should an investment approach be connected to, to outperform its peer group?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • To be able to define evidence-based investing
  • To be able to identify the reasons for the performance of evidence-based investing
  • To explain the significance of value investing

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