Investments and Portfolio Management Report



You are progressing in your investment career and have recently been appointed to lead the investment research team of a global fund manager based in San Francisco. Your first major project involves assessing six U.S. equities exchange traded funds (ETFs) as potential investment recommendations and preparing a summary report for the investment board. The table below details the six ETFs:


Ticker Name
FDL First Trust Morningstar Dividend Leaders Index Fund
PDP Invesco DWA Momentum ETF
SPHB Invesco S&P 500 High Beta ETF
SPHQ Invesco S&P 500 Quality ETF
VBK Vanguard Small-Cap Growth ETF
VUG Vanguard Growth Index Fund ETF



These ETFs are based on “Smart Beta” strategies. In addition to your overall recommendations, the investment board is interested in understanding more about smart beta strategies. Your report will include sections that explain what a smart beta strategy is, and the objectives of the smart beta strategies underlying the set of ETFs you are analysing. One member of the investment board is particularly concerned about the stability of factor exposures, and the reasons for potential divergence in performance between smart beta ETFs and their underlying benchmark.


Your team has compiled monthly historical returns for each of the ETFs along with factor data for the period 1 January 2012 to 30 September 2020. This information is contained in the spreadsheet ‘Report 3 – Data.xlsx’. The contents of each worksheet are listed below:

  • ETFs: contains monthly excess returns for the six U.S. ETFs.
  • Factors: contains the monthly excess market return (Mkt-RF), a size factor (SMB), a value factor (HML), a momentum factor (MOM), a betting against beta factor (BAB), and a quality minus junk factor (QMJ).

No further adjustments to the data are required and you do not need to collect any further data for your regression analysis, though you are expected to conduct additional background research on the ETF market and strategies of the ETFs under consideration. Your analysis should use returns and factors on a monthly basis.


Report structure


Your task is to use your knowledge of investment style and smart beta to prepare a report that addresses each of the following requirements.


  1. Begin your report with an executive summary that summarises the key aspects of your report and your final recommendation. (word limit: 180)
  2. Provide a concise summary of the differences between active and passive investing, and how smart beta strategies compare with these traditional portfolio management approaches. (word limit: 220)
  3. Summarise the objectives of a smart beta fund in general, as well as the specific strategies of each of the ETFs under consideration. (word limit: 250)
  4. Estimate the following models for each ETF over the sample period 1 January 2012 to 30 September 2020 and clearly summarise your estimated regression parameters in a table, noting also those estimates which are statistically significant:
    1. Single Index Model:

𝑟! − 𝑟= 𝑎! + 𝑏!’𝑟# − 𝑟( + 𝑒!

  1. Fama-French three factor model:

𝑟! − 𝑟” = 𝑎! + 𝑏$,!’𝑟# − 𝑟”(             +        𝑏&,!𝑆𝑀𝐵        +        𝑏’,!𝐻𝑀𝐿 + 𝑒! c. Multi-factor model:

𝑟! − 𝑟= 𝑎! + 𝑏$,!’𝑟# − 𝑟(               +               𝑏&,!𝑆𝑀𝐵               +            𝑏’,!𝐻𝑀𝐿 +               𝑏(,!𝑀𝑂𝑀              +            𝑏),!𝐵𝐴𝐵 +               𝑏*,!𝑄𝑀𝐽 + 𝑒!

  1. Discuss the factor loadings from your results in (4). Are the factor loadings consistent with the objectives of the funds? (word limit: 200)
  2. Is there any evidence of the ETFs generating positive alpha based on your results in (4)? Explain your response. (word limit: 120)
  3. Analyse the stability of factor exposures over time for the set of ETFs under consideration and provide a discussion of this in response to the concerns of the investment board member. (This analysis is intentionally left open-ended for you to determine how you want to approach it. Your response should include a brief justification for the approach you take. You may use tables and/or figures to support your discussion. Tables and figures in this part are not included in the section word limit, but should not exceed a page in total.)

(word limit: 300)

  1. Provide a response to the investment board member’s concerns regarding potential divergence in performance between smart beta ETFs and their underlying benchmarks. (word limit: 200)
  2. Conclude your report with an overall assessment of the ETFs under consideration and final recommendation as to which ETF your fund should consider taking an investment position in. Your conclusion should note any assumptions and/or limitations to the analysis undertaken in arriving at your recommendation. (Once again, this is intentionally left open-ended for you to determine how you want to approach it. Marks will be largely based on the quality of your argument.) (word limit: 250)



Further requirements


It is expected that you will undertake further research from practitioner and/or academic sources to support parts of your report. These sources do not necessarily need to be academic journal articles. Parts of your report will also require you to undertake regression analysis. If you are making conclusions based on regression analysis you should identify whether the estimated regression coefficients are statistically significant.


Written reports must be submitted via the Turnitin link labelled ‘Report 3’.  Alongside your report you need to submit your workings for any relevant quantitative analysis. Workings will not be directly graded. Submit your workings as an Excel spreadsheet via the ‘Report 3 – Supporting workings’ link in Canvas (or code if using an alternative statistical analysis software package).


Address the requirements of each question clearly. Dot points may be used where you determine it is appropriate to do so, but the format of this assignment should more closely follow that of a professional report than was required in earlier assignments. The data provided in this report is adapted from real stock market data and has been customised for the purposes of this assignment. You should only use the data provided to you in completing this report (you are not required to gather any additional data).


Marks will primarily be allocated to your discussion and justification of your answers using your quantitative analysis. Marks will be awarded for correct calculations as well as the clarity of your discussion and how you present your findings. Submit your report through the appropriate Turnitin link as a word or pdf document. Faculty and/or university referencing requirements must be followed and academic honesty policies apply.


Do not include the raw data in your written report. Please use minimum 11pt font with 2cm margins and include all references, if required, in a bibliography. Bibliography does not count towards word limit, but intest references do count towards the word limit of each section.