What caught my eye this week.

With AI chatbots and search overviews now vigorously putting the boot into an online media that was already on its knees, quality independent websites covering investing and money are shrinking faster than violets at an OnlyFans convention.

Good news then that the curation site Snippet Finance has started maintaining a content hub for investors, with links to all kinds of resources.

You’ll find a few Weekend Reading favourites in its listings. But there’s plenty of other lesser-seen websites, tools, and other useful stuff to explore, especially if you’re a professional or dedicated amateur finance nerd.

Be sure to check out Snippet Finance itself. Creator Yuri is the Hemmingway of investment editorial. This introduction is twice as long as a typical Snippet post.

Incidentally, I just dived into the Monevator vaults to find a similar listing I ran early in the life of this website. Of the blogs I tracked, only us, Mr Money Mustache, Financial Samurai, and Simple Living in Somerset (renamed) are still standing.

Who would want to write for us?

Talking of the bonfire of the blogosphere, any investing maniac starting today who wants to talk about their favourite subject online – doubtless having been banned from doing so by exhausted family and friends – would probably have to gurn into an iPhone to create videos for YouTube or TikTok.

Maybe that’s you – but then again maybe you’re more a great one for a witty adverb, rather than the next Mr Beast?

If so then Monevator would benefit from a new and brilliant regular writer.

We’ve had several over the years, but somehow they never last.

Often they discover they haven’t got as much to say about FIRE, personal finance, or index funds as they thought they did after the third article.

Most just can’t write the Monevator way. (It’s not so hard. Take the day off and yet still be at it at midnight. Never use two words when three will do. Add some obscure references to 1980s music and 1990s video games and you’re all set!)

Honestly it probably won’t work out with you either.

But I’d still love to hear from you if you’ve got a lot to share.

Ideally you’ll be more towards the start of your journey than we are. Not phobic about smartphones and investing apps. Maybe you even bought an NFT of a cartoon gorilla during the 2021 crypto mania before repenting your foolish ways.

But mainly you’ll be on-message with sensible investing. A bit of personal finance hackery – stoozing, credit card rewards, current account bonus chasing – wouldn’t hurt either. (It all adds up in your 20s.)

We’d want a bit of personality in the mix. Judicious. Tasteful. Nothing too influencer-y.

Can you point me to a bit of writing you did earlier? Brilliant.

Get in touch via the Contact form if you’re the person all your friends go to about investing. Just so long as you write better than ChatGPT, and without it too.

Try to enjoy the heatwave if you’re in the UK. It’ll be winter by August.

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Few investors would say “no” to beating the market. Even the most passive among us would happily filter-feed a few extra quid – like a financial blue whale – if we didn’t need an ‘edge’ to make it happen.

Last week we looked at one way to potentially do that. The small value strategy has earned a 2% annualised premium versus the market over the long-term. Outside the US, small value has beaten the market by 1.5% annualised since 1990. Which is just as well, because it’s had a torrid time against the S&P 500 these past 20 years.

But other systematic market-beating strategies are available!

The cast of credible candidates includes:

• Momentum – You buy recent winners, sell recent losers
• Quality – Firms with high return on equity, low debt, and stable earnings growth
• Low volatility – Low beta stocks that don’t fizz or fizzle as violently as the market. The draw here is the potential for superior risk-adjusted returns

We can invest in any of these strategies using an ETF, they’re backed by independent research, and the risks are pretty well understood.

But how well do they actually work? If in fact they do…

Are there any diversification benefits to be had if you combine the strategies?

Let’s turn to the data!

While we’re at it, let’s look at the dividend growth / leader / aristocrats strategy, too. Dividend growth is not widely considered to be a market-beating wheeze but we have the numbers, so let’s see.

Investing returns sidebar – All returns quoted are nominal total returns. US data is from the astounding Simba’s backtesting spreadsheet and compiled by members of the Bogleheads to further public knowledge of investing. World data is quoted in GBP and is from the spiffing justETF.

Market beat-’em-up

Which strategies socked it to the market over the longest comparable timeframe?

Here’s our contenders’ annualised returns versus the S&P 500 for the 40 years from 1985-2024:

Strategy	Annualised return (%)	Sharpe ratio
Broad market (US)	11.7	0.69
Momentum	13.7	0.71
Quality	12.9	0.72
Dividend growth	12.4	0.88
Low volatility	11.1	0.84
Small value	11.1	0.63
Small cap	10.5	0.58

US stocks only. USD returns. Small value and small cap included for comparison purposes.
The Sharpe ratio is a measure of risk-adjusted returns. Higher is better.

On these numbers momentum looks like a must-have.

That’s not too surprising. The long-short version of the momentum strategy stands out as the most profitable of the so-called risk factors in academic literature. And here we can see that a long-only iteration has delivered a 2% premium in the all-important US market.

Moreover, my numbers (not tabulated) show momentum’s volatility is pretty normal for an equity holding. Volatility averages 19.3% across the period.

Also-rans worth running

What about our other belligerents?

Quality also looks good. It beat the market by 1.2% per year on average. That will add up. Again there’s no sign you must endure sickening volatility to snaffle the extras.

The biggest surprise to me is dividend growth. High dividend stocks are routinely found by academics to lack any special sauce. But the strategy has topped the market by a commendable 0.7% over the period we have data for.

Dividend growth also delivered the best risk-adjusted returns. That is, you got more bang for your buck per unit of risk taken (as measured by volatility).

Low volatility1 didn’t beat the market but it isn’t meant to. A low volatility strategy touts superior risk-adjusted returns versus the broad market – and on that score, it delivered.

You might think of low vol as the antacid of equity strategies. It offers relief against stomach-lurching drawdowns without sacrificing too much return.

Finally, small value and small cap were poor over this time horizon. But if that encourages you to write-off small value then I’d urge you to read our recent musings on small caps first.

Time trial

Let’s split apart the 40-year timeframe. Doing so may reveal extra nuance:

Strategy	5yr ann return (%)	10yr ann return (%)	15yr ann return (%)	20yr ann return (%)	25yr ann return (%)	30yr ann return (%)
Broad market	14.5	13.1	13.8	10.3	7.7	10.9
Momentum	11.8	13.2	14.5	11.1	8.6	13.2
Quality	13.6	12.9	13.8	10.8	8	12
Divi growth	11.5	11.4	12.3	9.7	9.6	11.1
Low volatility	8.1	10.2	12.1	9.5	11.1	10.1
Small value	9.9	8.9	11.2	8.5	9.8	10.7
Small cap	9.3	9.1	11.6	9.1	8.7	10.2

Firstly, we can see that none of this lot laid a glove on the S&P 500 these past five years.

Don’t bother with risk factors unless you’re prepared for the long haul. If they beat the market all the time, then they would stop being risk factors. The key word is risk.

With that said I’ve highlighted momentum because it’s the only factor that’s consistently beaten the US market across every timeframe beyond five years.

Quality has been more erratic – while you have to push your view back at least 25 years before dividend growth bests the S&P 500.

Timely reminders

The table shows how considering different time frames can influence our view. For example, low vol and small value would look pretty hot right now, if all we had to go on was 25 years worth of returns.

Is there anything special about this quarter-of-a-century mark?

Well, the broad market nose-dived 38% during the Dotcom Bust (2000-02). But low vol, small value, and dividend growth all climbed during the crash. They hedged your losses at just the right time.

Low volatility and dividend growth also suffered far less than the S&P 500 during the Global Financial Crisis and 2022’s inflationary surge. Meanwhile, small value enjoys a lower correlation with the market than the other strategies across the entire period.

So there is some strategic value in thinking beyond the raw returns, especially if your objective is to limit drawdowns.

For example:

• Want to curtail your losses in a crisis? Consider low volatility and dividend growth.
• Want to diversify your returns away from big tech? Think small value.

Incidentally, I find the risk factor framework more convincing than geography as a basis for diversification. Perhaps that’s one we can debate in the comments?

Diversification potential

A correlation matrix can help us assess the diversification benefits of each asset pair. The lower the number the better.

Strategy	Broad market	Small value	Momentum	Quality	Low volatility	Divi growth
Broad market	1.0	0.71	0.90	0.96	0.94	0.87
Small value	0.71	1	0.5	0.59	0.71	0.78
Momentum	0.90	0.5	1	0.91	0.86	0.75
Quality	0.96	0.59	0.91	1	0.90	0.85
Low volatility	0.94	0.71	0.86	0.90	1	0.92
Divi growth	0.87	0.78	0.75	0.85	0.92	1

Small value demonstrates the most diversification potential across the board. It’s the only strategy that’s not highly correlated with the broad market.

Even more intriguing is small value’s relatively low correlation with momentum and quality. That indicates these are likely complementary assets if you’re interested in a diversified multi-factor strategy.

Dividend growth also has some diversification value, so I’d also like to test how well it performs when paired with other strategies…

Multi-factor mash-up

Let’s dial up the fortunes of three equity portfolios:

• 50/50 momentum/small value (SCV) – best performer + most diversified
• 50/50 momentum/dividend growth – two strong performers + moderate diversification
• 50/50 dividend growth/small value – just to see!

Here’s the returns for each portfolio ranged against the market and their component strategies:

Portfolio	10yr ann return (%)	15yr ann return (%)	20yr ann return (%)	25yr ann return (%)	30yr ann return (%)	40yr ann return (%)
50/50 Mom / SCV	11.2	13.1	10	9.5	12.3	12.7
50/50 Mom / Divi	12.4	13.5	10.5	9.3	12.4	13.2
50/50 Divi / SCV	10.1	11.8	9.2	9.8	11	11.9
Broad market	13.1	13.8	10.3	7.7	10.9	11.7
Momentum	13.2	14.5	11.1	8.6	13.2	13.7
Small value	8.9	11.2	8.5	9.8	10.7	11.1
Divi growth	11.4	12.3	9.7	9.6	11.1	12.4

The portfolios are rebalanced annually.

What I’m looking for from my backtest portfolios is only a modest reduction in long-term 40-year returns2 versus the strongest component in the mix.

I’d also like to see strong positive diversification potential at the 25-year mark. That’s the best period for getting a quick bead on the benefit of holding an otherwise weaker seeming asset.

I also want to check if holding two imperfectly correlated assets (for example momentum and small value) essentially delivers the market return. That is, do they just neutralise each other?

Not bad

The good news is that momentum and small value do not cancel each other out.

You still earn a 1% premium versus the market over the long-term, despite SCV’s poor showing overall.

The portfolio result also significantly improves on the performance of the market and momentum over 25 years – the period most affected by the background radiation of the Dotcom Bust.

Yes, you can rightly point out that small value has proved to be a drag overall. But you couldn’t have known that in advance.

Moreover, international3 small value has beaten the international market – even over the past five years. And it’s lagged international momentum by only 0.5% annualised over those last five years, too.

In other words we can’t conclude small value is dead (although it’s clearly resting in the US).

Dividend growth also proves out its diversification chops, while otherwise the numbers show what we already know – the strategy delivered strong returns over 40 years.

Beyond that, I don’t think there’s any point me torturing the data to find some mythical sweet spot involving, say, 17.37% of quality and eye of newt and whatnot.

Essentially, I just wanted to check that choosing moderately correlated factors can produce a diversification uptick without banjaxing the return premium.

If you don’t want to invest in something that hasn’t outperformed for the last ten years then fair enough. Stick to the market, I think that’s a perfectly rational place to be.

Show me the world

We can gain an alternative perspective by checking live fund data. A raft of World risk factor ETFs launched in Europe in 2015, so we can just about scrape up ten years worth of GBP returns by comparing them:

Asset class	5yr ann return (%)	10yr ann return (%)	Sharpe ratio
Broad market	12.4	12.6	0.79
Momentum	12.5	14.8	0.82
Quality	11.7	12.9	0.79
Multi-factor	11.6	11	0.69
Low volatility	6.9	9.9	0.76
Small cap	9	9.5	0.56
Small value	12.9	7.8	–
Dividend growth	8.3	7.2	0.48

Nominal total returns. ETF returns courtesy of justETF. 10-year return is actually 9-years and 9-months due to the youngest ETF’s inception date. Small value is DFA’s Global Targeted Value fund courtesy of Morningstar. Sharpe ratio is based on 10-year returns (not available for small value).

On this view, small value is the best performer over five years but the second worst over ten.

Momentum is the only strategy to beat the market convincingly over ten years.

Dividend growth had a particularly tough time of it.

What does this tell us?

• It’s been a great time to be a momentum investor
• Don’t believe small value is dead
• Don’t count on any strategy beating the market while you happen to hold it
• Don’t rely exclusively on return comparisons or the experience of a single market to form a view

Personally, before I commit a penny I want to read independent research that can offer:

• Some confidence the strategy will work in the future
• A guide to the risks
• A reason to believe this is more than just an eye-catching pattern in the data or a conveniently arranged backtest

Take it steady,

The Accumulator

1. Also minimum volatility. [↩]
2. The maximum comparable timeframe. [↩]
3. International means ex-US in this context. [↩]

What caught my eye this week.

I don’t remember spending reviews being such a media event in previous years. But this week’s got nearly as much attention as a Budget – despite telling us almost nothing we didn’t already know.

I suppose it’s because the free-spending days for Britain are long gone. Everyone is now watching their pennies.

Of course even before the financial crisis, Brexit, Covid, and the war in Ukraine, there was never enough money.

But after all these shocks the country has become like a working class family of yesteryear who has fallen on hard times.

The head of the household budget takes the too-slim pay packet from the breadwinner – and any pocket money scavenged up by the kids – and parcels it out into envelopes and jars to budget for the month ahead.

Food. Rent. Money for the coal man.

A few little treats for the baby.

It’s tough. More money is going out – but not enough is coming in.

It’s not that Rachel Reeves is taking us back to post-financial crisis austerity.

Real terms spending is set to rise.

Rather it’s that not enough money is being generated at the top of the funnel to pay for the British state that we’re used to, let alone the one we aspire to be.

Tax…

This lack of cash persists even as the government taxes us until we squeak.

The average Briton was handing over all their income to HMRC until the Thursday just gone – the so-called Tax Freedom Day for 2025.

To quote the right-wing Adam Smith Institute:

Tax Freedom Day [fell] on the 12th June.

This year, Brits are working 162 days solely to pay taxes, six days longer than last year.

But [we] expect that by 2028 the UK will have its latest Tax Freedom Day ever, 24th June.

This would mean that the tax burden could be higher than it was during WW2 and The Napoleonic Wars.

This is based on current Government taxation and spending plans, and OBR projections.

By as soon as 2030, Tax Freedom Day could fall over half way through the year with taxation exceeding 50% of Net National Income.

The research also shows that the rich are carrying an increasingly large proportion of income tax.

Cost of Government Day, which factors in borrowing as well as taxes, is July 22nd – the latest since the pandemic.

The Adam Smith Institute has its own agenda to promote. But you can’t really argue with the numbers.

…and spend

I didn’t find much to object to in the spending review, in terms of where the money is going.

The tilt towards thinking about the future versus short-term bungs is admirable, in so far as it went.

Support for infrastructure and house building is sensible. Insulating Britain’s draughty homes and money for more nuclear reactors are no-brainers if you believe like I do that humanity is behind in the battle to avert serious climate change.

Higher defence spending is inevitable. Albeit frustrating in that if it works as a deterrent, then we (hopefully) won’t ever use in anger much of the expensive hardware we’ll be paying for.

Personally I’d like to see far more spent on education and training. A better educated and more skilful population could help to address Britain’s lamentably low productivity.

More capable homegrown workers are also necessary to fill the structural vacancies following Brexit, especially if – as I accept is politically required – immigration is to really be brought down.

Not least when it comes to building those 1.5m new homes we’re promised.

Little Britain

Of course we all have our priorities as to how the government should redirect that tax money it takes in.

Have a read of the links below. Applaud or fume to suit your fancy.

What did dismay me though was the nationalistic tone of some of Reeves’ rhetoric.

Britain will make this! British workers will do that!

As if this isn’t obvious.

And as if doing it ourselves is always the best solution versus trade.

Well, it’s not.

Just one example is the hullabaloo over British Steel. Despite various governments intervening and spending to keep this industry on its last legs for decades, the total number of workers employed has fallen from over 330,000 in the 1970s to barely 30,000 today.

We’re producing vastly less steel too.

But is that such a tragedy?

If you are a steel worker and you can’t find work elsewhere, then yes – and Britain for sure did a lamentable job in helping its skilled workers as their industries declined through the 1970s and 1980s.

But from a national perspective?

The world makes far too much steel. That’s why there’s a glut and why these plants are permanently imperilled. And with our high energy costs and general dislike of dirty and polluting industries, Britain is one of the worst places in the world to make it. Not that we even need so much of the stuff these days.

But that’s fine. We can just import it and do other things we’re better at!

It’s called comparative advantage and it was all hashed out hundreds of years ago.

The idea that Britain can – or should – have an independent steel-making industry is for the birds, and for Reform voters.

Britain isn’t even self-sufficient when it comes to food. In any now-unthinkable conventional war where imports were somehow permanently blockaded, we’d half-starve.

Besides even if we have steel plants, we don’t produce our own coking coal or iron ore anymore. So that would need to be imported anyway.

“Well we should be digging that up too!” you might retort.

I fervently disagree, but understand that if we were to go down that path it would mean billions and billions more in government subsidies and interventions that could instead be spent on boosting something we’re actually good at and the world wants more of from us.

As a nation we’d be poorer as a result of your sweatshop fetish.

If we must have a more secure steel supply, then let’s just import five year’s worth of it as a buffer while it’s cheap, stockpile it in a few giant warehouses, and call it a strategic reserve.

I’m sure we’ll never need to draw upon it. But it’d be a cheaper solution than to keep making the stuff with everything against us.

Votes have consequences

Then again, all the jingo-lite stuff wasn’t in the spending review for me.

It was aimed at peeling off Reform voters by reminding them that yes, shock horror, the overwhelming majority of spending done by the British government goes on British interests. Not on bunk beds for asylum seekers or goats for Burkina Faso.

And sadly, these numpties are still calling the shots as the marginal power players in British politics.

It’s a sorry situation. You would think that after the absolute failure of Brexit to deliver anything material except the loss of £40-50bn a year in tax receipts due to lower-than-otherwise economic growth, that Nigel Farage’s flush would be thoroughly busted by now.

But his support has never been about facts, it’s all about feelings. Anyone still backing Farage’s nationalistic agenda for economic reasons can’t use a calculator, let alone a spreadsheet.

Of course it’s true that many Reform voters don’t believe or care about the consequences of Brexit-y policies on economic growth.

At best they are staunch constitutionalists and are happy to pay the price for that – which is fair enough.

Or maybe they just prefer a Britain that was more like it was and less like, say, London has been getting. Not my view but also mostly fair enough, if it’s expressed nicely and politely.

Many Reform voters have unrelated worries that would be better tackled by any other party than Reform.

And some are just xenophobes and racists.

It’s a broad church and you might think Reform would never be elected to run the country, so who cares?

Well firstly, never say never. Look at the polls.

But more pertinently, the resultant accommodation of Faragian language and even thinking by the mainstream parties expands the Overton Window of what’s acceptable.

This doesn’t just make immigrants feel unwelcome or scared, say, which you might say you can live with.

It will also lead to wrong-headed choices for the country, do yet more damage to the economy, and leave us with even less money to spend in future years.

So if you’re annoyed your taxes are still going up, these are the people to blame.

More to read:

• The spending review 2025 – UK Government
• Key points at a glance – Guardian
• Seven reality checks – Politico
• Which government departments were the winners and losers? – Guardian
• Seven ways the spending review will affect you – BBC
• Progress, but gaps remain for business – CBI
• Understanding the government’s two ‘phases’ – IFS
• Key climate and energy announcements – Carbon Brief
• Why we should all hope Rachel Reeves can deliver growth – This Is Money
• The spending review was a major political shift – Prospect
• Smoke, mirrors, and no strategy [Podcast] – Spectator

Have a great weekend.

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