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On the Persistence of Style Returns

Stan Beckers and Jolly Ann Thomas
The Journal of Portfolio Management Fall 2010, 37 (1) 15-30; DOI: https://doi.org/10.3905/jpm.2010.37.1.015
Stan Beckers
is a managing director at BlackRock in London, U.K.
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  • For correspondence: stan.beckers@blackrock.com
Jolly Ann Thomas
is an associate director at UBS in New York, NY.
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  • For correspondence: jolly-ann.thomas@ubs.com
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Abstract

Most actively managed portfolios have either a transient or a permanent style bias. The question of whether style returns can be forecasted or timed is therefore intriguing. In this study, Beckers and Thomas focus on the persistence and predictability of the Barra style returns in the U.S., Europe, and Japan. Most of these style factors have, at times, been rewarded with significant risk premia. The authors show that actively betting on the persistence of historically significant style returns leads to noticeable outperformance as demonstrated by high information ratios. Exactly capturing the style returns is not straightforward, however. The authors thus analyze whether long-only and 130/30 style-tilted portfolios can approximate the desired style effects. Although these portfolios cannot fully replicate the pure style return, they are still extremely useful as part of a diversified style overlay strategy. The authors’ results indicate that style-tilted overlays can enhance the arsenal of active portfolio managers and that a judiciously diversified exposure to style-tilted overlays would have added significant value in the past.

TOPICS: Portfolio management/multi-asset allocation, style investing, performance measurement

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The Journal of Portfolio Management: 37 (1)
The Journal of Portfolio Management
Vol. 37, Issue 1
Fall 2010
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On the Persistence of Style Returns
Stan Beckers, Jolly Ann Thomas
The Journal of Portfolio Management Oct 2010, 37 (1) 15-30; DOI: 10.3905/jpm.2010.37.1.015

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On the Persistence of Style Returns
Stan Beckers, Jolly Ann Thomas
The Journal of Portfolio Management Oct 2010, 37 (1) 15-30; DOI: 10.3905/jpm.2010.37.1.015
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  • Article
    • Abstract
    • BARRA STYLE FACTORS IN THE U.S., EUROPE, AND JAPAN
    • STYLE BIASES IN THE S&P 500, MSCI PAN EUROPE, AND MSCI JAPAN: HOW MUCH DO THEY DETRACT FROM PERFORMANCE?
    • A VERY NAÏVE STRATEGY: BET ON LONG-TERM STYLE RETURN PERSISTENCE
    • ANOTHER STRATEGY: SIMPLE REGIME-DEPENDENT TIMING DOES NOT WORK
    • A REALITY CHECK: CAN YOU ACTUALLY DO THIS?
    • THE BOTTOM LINE
    • APPENDIX A
    • APPENDIX B
    • ENDNOTES
    • REFERENCES
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