factor based startegies

Question 1

traditional indexing

Answer 1

generally involves tracking the returns to a market cap weighted benchmark index

Question 2

return oriented factor based strategies

Answer 2

include:

dividend yield strategies

momentum strategiess

fundamentally weighted strategies

Question 3

risk oriented strategies

Answer 3

seeking to reduce downside volatility and overall pro folio risk

simple to understand

base don past data, which may not relate future returns

Question 4

diversification oriented strategies

Answer 4

include equally weighted indexes and maximum weighted diversification strategies

Question 5

what can a mismatch in benchmarks produce?

Answer 5

tracking error

–> indicates how closely the portfolio behaves like its benchmark

–> measured as the standard deviation of the differences between a portfolio’s return and its benchmark returns

Question 6

factor rotation

Answer 6

an investor’s process of changing exposures to specific risk factors as market conditions change