Close Close

Portfolio > Mutual Funds

Roger Ibbotson Launches Liquidity-Based Mutual Funds

Your article was successfully shared with the contacts you provided.

When building portfolios, advisors normally consider the effects of risk and reward, diversification, style, and fees. But Roger Ibbotson thinks that most are ignoring a key determinant of performance–liquidity. Ibbotson has been building portfolios with an eye toward including liquidity as one of those main determinants of returns for some time in his work as CIO of the hedge fund Zebra Capital. Now, he is bringing the approach, finding the “appropriate level of liquidity” in portfolios to the masses through, at first, two ’40 Act mutual funds to be run by American Beacon funds starting June 1.

Ibbotson says the notion of a liquidity premium “starts off pretty simply; there is lots of literature on the liquidity premium, but much of it has to do with alternatives and real estate. Fixed income is an obvious place to see this, too.” The essential point, Ibbotson says, is that “there’s a price you pay for liquidity. Illiquidity is a scary word for many people, but most people want more liquidity than they really need.” Thus, adding slightly less liquid–not illiquid–holdings to a portfolio is the key to increase return without significantly adding risk.

Ibbotson is launching two funds at first through American Beacon, large cap and small cap–but additional mutual fund launches are planned for the fall. “The research we’ve done shows that whatever category you talk about, in the U.S. and around the world, there are incremental returns [you achieve] from including less liquid holdings,” in a portfolio. “Everywhere we’ve looked, we’ve found a liquidity premium, and we’re talking about the public markets.”

Read more on how Roger Ibbotson includes liquidity in portfolios through this article from the archives of Investment Advisor.

Read the research that Roger Ibbotson and his colleagues at Zebra Capital and Yale conducted on liquidity.

Read Roger Ibbotson’s exclusive analysis of the financial crisis from the archives of