Smart Portfolios: Part 3 - Forecasting Returns, Models, and Active Management

This episode provides an extensive analysis of various investment strategies, moving from the initial necessity of establishing a strategic asset allocation without forecasting to exploring methods for predicting risk-adjusted returns. It introduces simple systematic forecasting models, specifically momentum and dividend yield models, as superior to human intuition for adjusting portfolio weights and selecting assets, offering detailed procedures and examples for their implementation across different portfolio levels. Additionally, the text critically examines the value of active fund managers and smart beta funds, concluding that their often-higher costs are rarely justified by statistically significant outperformance compared to cheaper, passive alternatives. Finally, it cautions against the use of robo advisors due to their costs and potential lack of flexibility or flawed optimization