A Simple Example Using Value and Momentum Themes

Portfolio implementation is critical for investment success. Seemingly minor differences in portfolio construction can lead to major differences in performance outcomes. In this paper, we summarize the differences between two popular portfolio construction approaches, “mix” and “integrate,” and examine a handful of value and momentum-themed examples to demonstrate how these differences play out in practice. Theory, intuition, and empirical evidence suggest these decisions are of first order importance and that the “integrate” approach has a material edge. In sum, when underwriting new investment strategies, it is important to fully understand the various portfolio construction approaches and their implications for future performance. A more detailed and in-depth coverage of this topic can be found in Long Only Style Investing: Don’t Just Mix, Integrate (Fitzgibbons et al, 2016). We would also like to thank Jeremy Getson, Toby Moskowitz, Bill Cashel, Gabriel Feghali, Marianne Love, Jason Mellone and Lukasz Pomorski for helpful comments and suggestions.