Factor investing: Theory vs. practice

As regular readers know, I have been an advocate of taking an overweight in cyclical exposure in equity portfolios (for the latest update, see Adventures in banking). While I continue to believe that the approach is sound, the reality has been less than fully satisfactory in the US. Among the cyclical groups, the semiconductors are on fire, and homebuilding stocks are weakening but remain in a relative uptrend. However, both industrial and transportation stocks have failed to hold their upside breakouts through relative downtrends, though they are still exhibiting bottoming patterns.

Here is what I believe is wrong, and it is a lesson between theory and practice in factor investing.

The full post can be found here.


Publication Notice: I will be taking some time off during the holidays starting next week, so posting will be lighter than usual. I will publish the regular weekend commentaries, but there will be no mid-week posting unless the markets experience wild volatility. Service will resume in the New Year.