Our mission:  the Brandes Institute investigates potential opportunities arising from the influence of behavioral and structural factors on global investing.

Most Recent Research Projects:

Corporate Credit:  An Opportunity on a Global Scale (July 2009)
The meltdown in liquidity in the corporate debt market in the second half of 2008, the related widening in spreads, and concerns over use (and misuse) of credit default swaps may have created both cyclical and secular opportunities for fixed income investors.

Is U.S. Small Cap a Viable Alternative to U.S. Private Equity?(April 2009)
A number of academic papers have indicated that returns for private equity funds, on average, have not outperformed public equities in the United States.   This contradicts the risk premium one might expect with private equity, given the liquidity, transparency limitations, and additional origination costs associated with private equity investments.  

Results from Investors' Survey Regarding Currency (February 2009)
The Brandes Institute conducted an online survey of institutional investors worldwide the week of December 8-12, 2008.  In this survey, clients responded to questions on the use of currency overlay programs, the impact of currency on plan assets, and the role of the carry trade in currency markets. The survey results are anticipated to be published in an upcoming issue of Pensions & Investments. The attached summary shares key findings, including areas of material difference between the responses of U.S. and non-U.S. investors.

Death, Taxes, and Short-Term Underperformance: Global Equity Mutual Funds (December 2008)
While there may be few certainties in life, the Brandes Institute believes short-term underperformance is one of them.  In this article, we study the performance of a wide range of global equity mutual funds over the last decade.  Our observations indicate that underperformance in shorter periods – such as one quarter, one year, or even three years – is to be expected, even for portfolios that may have performed strongly over the long term. (This article has been filed with FINRA.)

Has the Carry Trade Worked In World Bond Markets? (October 2008)
The Brandes Institute paper Carrying On? (published in 2006) documented a currency market inefficiency that had provided the potential to improve investment returns by owning higher interest-paying currencies.  In Has the Carry Trade Worked In World Bond Markets?, we test whether this anomaly also was present in the global fixed income markets, using 10-year maturity government bonds.  For the full study period (1973-2007) there was no clear pattern.  However, when the data is split between the same two periods we used for the currency analysis, a different perspective emerges.  For the 1973-1986 period, the higher bond returns were obtained in the low-yielding markets, while the reverse is evident between 1987-2007, with the “bond carry trade” having been more successful.

Value vs. Glamour: A Global Phenomenon (September 2008)
In 1994, Josef Lakonishok, Andrei Shleifer, and Robert Vishny published a landmark study investigating the performance of value stocks relative to that of glamour securities in the United States over a 26-year period.  Their research concluded that value stocks tended to outperform glamour stocks by wide margins.  However, their study did not include the glamour-driven markets of the late 1990s and early 2000s.  What effect might this period have on their conclusions?  To find out, the Brandes Institute updated their Value vs. Glamour research, now through June 2008, to examine the comparative performance over a 40-year period.  In addition, we also extended the scope of the initial study to include non-U.S. markets, seeking to determine if the value premium has been evident worldwide.

Global Small-Cap Stocks: A Life Cycle Perspective (September 2008)
In previous research, Global Small-Cap Stocks:  Reexamined and Redefined, the Brandes Institute found divergent construction methodologies among global small-cap index providers and introduced a custom series of country and regional small-cap universes to explore detailed historical fundamental data.  In the second phase of this research, Global Small-Cap Stocks: A Life Cycle Perspective, we use “life cycle” analysis to sort companies into different phases of development and challenge the notion that international small caps are similar to domestic small caps.  In this research, we make a number of interesting discoveries on why international small caps are structurally different from domestic small caps, or even international large-cap stocks.

Structured Products: Asset Backed Securities – Opportunities Resulting from Systematic Mispricing (August 2008)
Asset-backed securities have attracted attention in the recent months amid the uncertainty surrounding the mortgage sector and securitized debt.  This paper examines the “boom/bust” cycle of subprime mortgage pools, and demonstrates how long standing perceptions of rating agencies and their ratings could potentially be either a risk or an opportunity.

Most Recent Articles:

The Risk of Risk Management: A Roundtable Discussion with the Brandes Institute Advisory Board (January 2010)
In the wake of a tumultuous investment period, investors continue to sharpen their focus on risk management.  During 2009, the Brandes Institute Advisory Board, comprised of investment professionals working around the globe, shared their thoughts and unique experiences regarding how best to measure and manage risk. In this article, we share excerpts of their conversations that highlight the advantages, inherent limitations, fiduciary implications, and implementation challenges involved with Value at Risk (VaR) and other tools intended to measure and manage risk.

This article is part of an ongoing series presented by the Brandes Institute addressing the question, “What is risk?”

Death, Taxes, and Short-Term Underperformance: Non-U.S. Funds (November 2009)
Death, Taxes, and Short-Term Underperformance: U.S. Funds (November 2009)
Brandes Institute believes short-term underperformance is one the few certainties in life. Now updated through June 2009, these articles illustrate the potential for periods of short-term underperformance.  Our research focuses on the performance results of U.S. and non-U.S. mutual funds over the last decade.  Observations suggest that underperformance in shorter time periods - such as one quarter, one year, or even three years - is to be expected, even for funds that have performed strongly over the long term. (Note: These articles have been filed with FINRA.)

Value vs. Glamour: A Study of the Indices (October 2009) 
The Brandes Institute "Value vs. Glamour" studies demonstrate that value stocks have outperformed growth stocks over the long term.  But what about commonly used benchmarks?  Over the long term, have value indices outperformed their growth counterparts?

Value vs. Glamour Revisited Non-U.S. Handout (November 2009)
Value vs. Glamour Revisited U.S. Handout (June 2009)
The Brandes Institute recently revisited its Value vs. Glamour research, focusing on the relationship between the valuation difference in price-to-book ratios, and subsequent relative performance.

The Institute discovered that, historically, when the difference in P/B ratios between value and glamour stocks was at or near its peak, value stocks delivered meaningful outperformance over the subsequent 5-year period.   This article documents the recent expansion in the gap between median P/B ratios for value and glamour stocks and examines the implications for investors.

Benjamin Graham and Risk (April 2009)
In “Benjamin Graham and Risk,” Brandes Institute Advisory Board member Bruce Grantier examines the similarities and differences between the modern portfolio theory concept of risk and the writings of Benjamin Graham and other prominent value investors. 

Risk Evaluation within Asset Management: A Practical Perspective (March 2009)
Drawing on his 20 years of experience in the investment industry, Brandes Institute Advisory Board member Peter Branner cites developments that may have contributed to the 2008 financial crisis – and how these “risks” may be better managed.  Among the seven aspects of risk he addresses are mark-to-market accounting, an emphasis on relative performance, and short-term underperformance.
 
Branner’s article, “Risk Evaluation Within Asset Management: A Practical Perspective,” is one in a series of Brandes Institute pieces that seeks to answer the question, “What is risk?” 

Behavioural Investing: A Practitioner’s Guide to Applying Behavioural Finance (November 2008) Investors typically strive to be logical and unbiased decision makers.  However, many investors often are subject to innate tendencies that can contribute to less-than-rational decisions.  In this light, one would do well to first understand common behavioural tendencies and misperceptions. 

In this article, Brandes Institute Advisory Board member Bruce Grantier reviews James Montier’s book Behavioural Investing: A Practitioner’s Guide to Applying Behavioural Finance.  The book addresses timely topics such as group decision making, modern finance, and the nature of bubbles.  Grantier finds that Montier’s book effectively and convincingly communicates how the brain is hardwired to like short-term gratification (often leading to quick and easy decisions), and to dislike social-exclusion behaviour (often leading to herd-like decisions).  

Value Investing: Has It Worked In Emerging Markets? (August 2008)
The Brandes Institute’s Value vs. Glamour research has demonstrated the persistent outperformance of value stocks over glamour stocks in developed markets worldwide over long time periods.  Investors may wonder if the value premium is also evident in developing countries.  In this article, we investigate whether “glamorous” companies in developing countries have outperformed their “value” counterparts over the last few years.  We also reveal whether value investing has worked in emerging markets over the long term.

Value vs. Glamour: Bond Performance (July 2008)
Previous research by the Brandes Institute has shown the historical long-term performance advantage of value stocks over glamour stocks.  What about corporate bonds?  Here, we show that bonds issued by value companies have provided greater appreciation than those issued by glamour companies. 

The Investor’s Paradox: Making Intelligent Decisions Amid More Choices (June 2008)
Having more choices is always a benefit – or is it? In the book The Paradox of Choice (New York: HarperCollins, 2004), Professor Barry Schwartz convincingly argues that the process of making constant decisions amidst a sea of overwhelming choice – be it health care options, televisions, or investment products – can and often does result in behavioral biases, stress, and poor decisions.   In this article, we share insights from The Paradox of Choice and discuss the implications for investors.

Other Featured Pieces:

Value vs. Glamour: Updated and Expanded
Benjamin Graham on Fixed Income

Our Complete Collection:
Click here to view a list of all Brandes Institute publications

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