Articles & Insights
Tacita Capital Commentary  |  01 January 2015

2014 Global Factor Round Up

One of the most important discoveries in finance over the past few decades is that stocks of firms that share certain fundamental characteristics called “factors” exhibit different return and risk characteristics than the overall market. Critical to investors is the fact that, over long periods of time, certain of these factors have earned excess returns compared to the overall market. Read more >

Tacita Capital Commentary  |  03 July 2013

Fantasy versus Factors

A casual observer of the investment management industry could easily surmise that active investment managers effortlessly generate “alpha” – risk-adjusted returns in excess of an appropriate market benchmark. Read more >

Tacita Capital Commentary  |  30 September 2012

High Dividend Yield Strategy under the Microscope

Today’s ultra-low interest rates have propelled investors into a frantic quest for higher income. In response, high dividend yield stocks have become the favourite recommendation of a host of advisors. Read more >

Tacita Capital Commentary  |  15 June 2012

The Plight of the Conservative Retiree

Only a few short years ago, investors demanded a 5.0% yield to invest in AAA rated US Treasuries. Those days are a distant memory. As illustrated below, the yield of Treasuries, now AA rated, plummeted to a miniscule .87% at the end of May. Market historians have to go back to World War II when rates were set by the joint agreement of the Federal Reserve and the Treasury Department to find rates so low. Read more > 

Tacita Capital Commentary  |  01 March 2012

The Rebalancing Premium

“Buy and hold” is not an effective strategy for risk conscious investors. Any portfolio’s asset mix will drift from its strategic target as asset prices move differentially in response to changing economic and market forces. Over time, the higher return assets will comprise a larger proportion of the portfolio and distort its return and risk dimensions from those originally constructedRead more >

Tacita Capital Commentary  |  15 January 2012

The Dividend Yield Love Affair

Today’s rock bottom interest rates have propelled many investors to pursue high dividend yield stocks. This quest has been made more challenging by the fall in dividend yields over the past six decades. This decline is illustrated in the following graph that depicts the annualized dividend yield on the S&P 500 since 1950. Dividend yields, which topped 7% in the early 1950’s, dropped to their nadir of nearly 1% during the tech boom of the late 1990’s. They have since recovered somewhat but are still at a paltry level of just over 2%. Read more > 

Tacita Capital Commentary  |  15 November 2011

Harnessing the Power of Momentum

Momentum is defined as the tendency for investments that have performed relatively well in the recent past to continue to do so and for relatively poorly performing investments to continue to fare poorly. It is a well-documented anomaly in modern finance. Numerous academic studies have confirmed that, when measured in periods of approximately three to twelve months, past investment winners tend to keep on outperforming while past losers tend to keep underperforming. Read more >

Tacita Capital Commentary  |  15 September 2011

The Global Old Normal

Investors can be excused for their preoccupation with short-term Investment results. Amidst a cascade of dismal economic news, the trauma of a precipitous fall in stock prices and the overhang of a decade-long drought in equity returns, the idea of “taking a long-term view,” to many, seems hopelessly pollyannaish. Yet, long-term planning has never been more essential. Aging “Baby Boomers” today are grappling with retirement funding challenges that span multiple decades at a juncture where interest rates are at dismally low levels not seen since World War II. Read more >

Tacita Capital Commentary  |  15 August 2011

A Commentary on the Correction

Global stocks had plummeted 13.9% year-to-date as of the close of market on August 8th although they have since bounced back somewhat. The speed of this decline has staggered many investors, exacerbating a sense of anxiety that has not fully dissipated since the market crash. Read more > 

Tacita Capital Commentary  |  15 April 2011

Lessons from the Farm

Farmers know all about droughts. Droughts occur in nearly all climates and impair all types of crops. They are unpredictable, yet are recurring and can last for years. Likewise, performance droughts abound in the world of investing. Read more >

Tacita Capital Commentary  |  15 April 2011

The Real Story Behind Bond Yields

Since peaking in 1981, yields on the government bonds of most developed nations have fallen almost continuously, as illustrated in the following graph. Read more >

Tacita Capital Commentary  |  15 February 2011

The Sweet Spot

Investors face the challenge of funding decades of retirement in an environment of low interest rates and lacklustre stock valuations. For many, earning market returns alone will not suffice. Hence, thoughtful portfolio construction needs to incorporate asset classes that have higher long-term expected returns. In this regard, small company or small cap value stocks – the stocks of smaller companies that are low priced in relation to earnings, dividends and book value – have a critical role. Read more > 

Tacita Capital Commentary  |  15 December 2010

What’s Past is Prologue

As Shakespeare noted, the past is always a prologue to the future. Hence, investors should not have been surprised by the paltry 1.4% annualized return from U.S. stocks over the past decade. Lengthy spans of moribund or even declining prices have always followed periods of rapid ascent in stock prices, as was experienced from 1982 through 1999. Read more > 

Tacita Capital Commentary  |  15 November 2010

Real Return Expectations

There is nothing more important to long-term investors than real returns. Real returns – returns net of inflation – are what eventually fund consumption. The inflationary component of returns only offsets price increases. Read more > 

Tacita Capital Commentary  |  15 October 2010

Bogus Numbers

Investors today have a right to be confused. A cadre of investment strategists tell them that stocks are cheap, authoritatively declaring that the price-earnings ratio of the S&P 500 index is much lower than the historic average. Yet, another crowd of analysts claim that the market is overvalued, quoting different price-earnings numbers. Who is right? Read more > 

Tacita Capital Commentary  |  15 September 2010

The Myopic Bond Market

It is axiomatic that investors in government bonds expect to earn a return in excess of inflation. Why invest in a bond if it does not increase the purchasing power of one’s capital? Read more >

Tacita Capital Commentary  |  15 August 2010

The Free Lunch Illustrated

One of the most remarkable discoveries in modern finance is the ability to improve the expected return of a portfolio while simultaneously reducing its risk. While the proverbial “free lunch” does exist, its exploitation requires a focus not only on the returns and volatility of the assets in the portfolio but on the degree of covariance between those assets – i.e. the extent to which the returns of the assets move in tandem. All other things being equal, mixing assets that do not move in tandem will improve a portfolio’s risk-adjusted returns. Read more > 

Tacita Capital Commentary  |  15 June 2010

And the Winner Is

As investors rush into U.S. Treasuries in response to a weakening economy that may portend the onset of deflation, this begs the question whether there is a superior deflationary hedge. History can be instructive in this regard. Read more >  

Tacita Capital Commentary  |  15 May 2010

The Real Deal

It is easy to forget the picture of long-term economic growth given today’s turbulent markets. In 1925, the U.S. gross domestic product was $90.6 billion. By 2009, the GDP had grown to $14.3 trillion. This equates to a staggering 157-fold increase as a 6.2% annual average growth compounded over 84 years (see the following graph). Read more > 

Tacita Capital Commentary  |  15 April 2010

The Bond Roller Coaster

Investors have benefited over the past three decades from an unprecedented bull market in bonds since long-term government bond yields peaked at 14.8% in September 1981. Aggressive monetary tightening by Paul Volcker, Chairman of the Federal Reserve at that time, drove inflation from double-digit levels in 1981 to less than 3% in 1983. Continued vigilance by the Federal Reserve combined with deregulation, globalization and, until recent years, lower oil prices set a trend of disinflation and lower interest rates firmly in place. Read more >

Tacita Capital Commentary  |  15 March 2010

The Price of Emotion

Successful investing is built on twin pillars – diversification and self-control. Crafting a thoughtfully diversified strategy but not sticking to it is like having a fitness program without discipline – long on promise and short on results. Behavioural finance experts have identified a litany of cognitive biases that can distort investor decision-making and disrupt adherence to a sound strategy. Read more >

Tacita Capital Commentary  |  15 January 2010

Give Bernanke a Break

As populist politicians, long on hypocritical outrage and short on fiscal rectitude, begin the witch hunt for the parties to blame for the Great Recession, fingers are being pointed at Federal Reserve Chairman Ben Bernanke. Read more > 

Tacita Capital Commentary  |  15 November 2009

Routinely Under Water

Investors, fondly recalling the October 2007 high in the U.S. stock market, are undoubtedly anxious to see a full recovery of their capital. This is understandable. Read more >

Tacita Capital Commentary  |  15 June 2009

The Bond Hedge

For the long-term investor, risk is not about volatility – it is about a long-drawn-out period of dismal stock returns. Investors in U.S. equities are suffering the full brunt of this reality, as evidenced by the following graph that depicts the cumulative value of $1.00 invested in the S&P 500. Investors have endured eleven years of ups and downs to find they are back to where they were in March 1998. Read more >

Tacita Capital Commentary  |  15 May 2009

Japan’s Cautionary Tale

As the powerful stock market rally that began in early March continues unabated, investors need to keep a grip on their optimism and consider the possibility of a protracted period of lacklustre growth and deflationary pressures. Read more >

Tacita Capital Commentary  |  15 April 2009

The Big Picture

Has the market bottomed out? Is the recent market rise just a bear market rally? Should you wait a few months to see if the economy recovers before you invest? Questions abound as pundits in the media spew forth short-term prognostications. The Dow at 1000 or 10,000 – take your pick. Read more > 

Tacita Capital Commentary  |  15 March 2009

The Great Recession

As jobless rates skyrocket, numerous pundits have raised the spectre of the Great Depression, capturing headlines and garnering lucrative speaking venues as they prophesize inevitable devastation. Already overwhelmed by painful losses, many investors capitulate, preferring the refuge of cash to the prospect of utter ruin. Read more >

Tacita Capital Commentary  |  15 February 2009

The Money Illusion

The current deep recession has sent consumer prices spiralling downwards and, as illustrated in the following graph, inflation rates are now firmly in negative territory. Read more > 

Tacita Capital Commentary  |  15 January 2009

You Are Not as Poor as You Think

2008 was a year for the record books. Nearly every major asset class suffered record calendar year losses with several approaching 50 percent. Read more >

Tacita Capital Commentary  |  15 December 2008

The Fear Bubble

Asset bubbles, when prices zoom to irrational levels, are typically associated with investor manias. The technology bubble of the late 1990’s is a recent example where investors stampeded into tech stocks, pushing prices to extraordinary levels before the inevitable crash that followed. Read more > 

Tacita Capital Commentary  |  15 November 2008

Anatomy of a Recovery

Recent market volatility underscores the risk associated with attempting to predict market turning points – one day can mean a return difference up to 10%. Read more >

Tacita Capital Commentary  |  15 October 2008

Lessons from the Past

No one knows exactly how this bear market and the inevitable recovery will play out. However, the past can give us insights into how events might unfold. Read more >