Report 2 – Instructions for Report 2 PDF

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Case Study Report instructions to complete the first assignment...

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Report 2 – Instructions Each student will write an individual report about issues raised in a Kellogg School of Management case study on smart beta exchange-traded funds and factor investing (Braun, 2018). The case study is provided on Canvas. The report is to address the following specific questions: 1. What are Fama and French’s findings from their five-factor model? How do you reconcile their empirical findings with the CAPM model? 2. Characterise smart beta ETFs. 3. What is meant by factor or smart beta investing, and what is the rationale behind it? 4. This set of questions asks you to compare portfolios created from the MSCI factor indexes and standard market capitalisation-weighted iShares ETFs, along with the MSCI USA Diversified Multiple-Factor Index and the MSCI US large-mid-cap index (the MSCI USA Index). a. Using the data in Exhibit 3, in one chart, plot the minimum-variance frontiers constructed from: • The four MSCI individual factor indexes • The iShares large-mid-cap Russell 1000 ETF and iShares small-cap Russell 2000 ETF Include in the diagram data points for the MSCI USA Diversified MultipleFactor Index and the MSCI USA Index. b. What do you conclude about the value added from an investment perspective of the combination of the individual factor indexes (which are proxies for iShares’ smart beta individual factor ETFs) over traditional value-weighted investing? How does the multifactor index compare to traditional investing? How does it compare to the combination of the factor indexes? 5. This set of questions asks you to compare and contrast minimum-variance portfolios created from iShares’ bond ETF (AGG) combined with various MSCI indexes. a. Using the data in Exhibit 4, in one chart, plot the minimum-variance frontiers constructed from the iShares bond ETF (AGG) with, respectively: • The four MSCI individual factor indexes together • The MSCI USA Diversified Multiple-Factor Index • The MSCI USA Index Include in the diagram data points for the MSCI USA Diversified MultipleFactor Index and the MSCI USA Index. b. Beyond question 4, does your answer to 5a provide any additional insights into the value added of the four MSCI factor indexes (which are proxies for iShares’ smart beta individual factor ETFs)? What about the MSCI multifactor index (which is a proxy for the iShares’ potential smart beta multifactor ETF)? 6. Should iShares introduce the new US multifactor large-mid-cap ETF? Why or why not?

FINC3017, INVESTMENTS AND PORTFOLIO MANAGEMENT

The report must be your own work. All information sources used in the preparation of the report must be acknowledged appropriately. The APA 7th referencing style is preferred. Grading The report will be graded against the following criteria: • • • • •

Relevance—the report directly answers the above questions Knowledge and understanding of the issues Critical, analytical and integrative thinking Evidence of the use of appropriate materials (e.g. books, journal articles) Structure and presentation—the report is well organised and ideas are expressed clearly and concisely

Length and format The maximum length of the report is 5 A4 pages (including tables, figures, references and appendices). Reports should be 1.15-spaced, size 12 points, font Times New Roman. Use margins of at least 2.54 cm (1 inch). Submission details The report is due on 14 May 2021. No extensions will be granted. Any report submitted after 11:59 pm on the due date will incur a late penalty of 5% of the maximum awardable marks per 24-hour period, or part thereof, late. This penalty does not apply for cases in which an application for special consideration is made and approved. Any report submitted after the “Closing date” noted in the Unit of Study Outline will not be marked or assessed. The report must be submitted as a PDF file to Turnitin via the unit Canvas site. You may only submit one file. Reference Braun, P.A. (2018), ‘Smart beta exchange-traded funds and factor investing’, Kellogg School of Management Case No. KE1068, 31 May.

FINC3017, INVESTMENTS AND PORTFOLIO MANAGEMENT...