Cyclicality – Greetings From The Cold

Cyclicality – Greetings From The Cold by Charles Aram & Jonathan Treussard, Research Affiliates

Key Points

1. Cyclicality is a feature of both atmospheric conditions and investment performance. The historical record promises that for value investors, summer will follow winter—the challenge is in weathering the passing blizzard of negative returns.
2. Both U.S. and developed-market RAFI™-based strategies have outperformed their cap-weighted value benchmarks over the long term and on a 1-, 3-, 5-, and 10-year trailing basis.
3. The largest and most persistent investment opportunity is long-horizon mean reversion, which explains the historical outperformance of RAFI and supports our expectation that the dynamic value tilt of fundamental-index-based strategies will generate future excess returns over the long term.

Both of us are European-born and have a...