Assignment

After the success of your robo-advice venture you decide to explore alternative sources of profitability for your company. You realize that Australian investors are often forced to chose between expensive actively managed equity funds and index portfolios that, while cheap, do not offer any active return. You decide that in this gap there is space for a factor-based smart beta portfolio.

Your task in this assignment, is to produce a blueprint for a factor-based smart beta US equity investment product for the Aus- tralian market.

Your final document will have four components, each one with its own score and deadline.

1. A brief explanation of the philosophy behind value investing.
2. The backtesting process for a series of possible investment factors and your final selection of a small number of factors.
3. The construction of your multi-factor model and of your smart beta product.
4. A fact sheet of your product.

The deadlines listed below are relative to the electronic delivery of the assignment in UTS-Online. No paper copy is necessary. Electronic delivery of the assignment should contain two files:

In writing this assignment you should keep in mind that it is designed to replicate the production process of a market-ready investment solution. So both in your style and your presentation you should try to use a professional tone. You should try to forget that you are writing a university assignment and imagine o be in a professional context where you are writing for your clients or for your bosses.

Detailed Content

This is a detailed list of the components of the assignment with the relative marks one page document (hard limit) with a not technical explanation of value investing. The intended audience is a prospective client with a moderate understanding of finance but has never heard of value investing. The document should answer the follow- ing questions:

(a) What is value investing?

(b)Why should it work?

(c) How well did it work in the past?

2. Your process to back-test and judge the quality of the information signals provided in the assignment.

This should include:
(a)A description of the backtesting process (time period, rebal- ancing, portfolio size, etc.).
(b)A presentation of the results of this backtesting

3. Your process to combine the "best signals" into a single synthetic information factor.

This should include:
(a)A description of the process used to combine the signals.
(b)A presentation of the results of this process (the composition of your new factor)

4. Your process to build a Long-Short or Smart Beta portfolio

This should include:
(a) Your methodology building the smart beta or Long-Short portfolio.
(b) An analysis of the performance of this product (compared to the market) both in-sample and out-of-sample.
The remaining 5 marks will be given for the quality of the pre- sentation. I do not require professional editing but your document should still look and fill professional. Things that will be considered:
- Quality of writing.
- Ability to present information effectively using graphs and tables.
- Quality of the formating of tables and graphs.

Page limit
The page limit for parts 2, 3 and 4 of the assignment is only indica- tive. The entire assignment should not go over 10 pages. If you want to present additional tables and graphs, put them in an appendix.

Part 1 - Value Investing
The page limit on this part is non negotiable. You need to learn to present information in a concise and effective way. Here the idea is to test your ability to effectively communicate to your clients the ideas behind your investment strategy. I suggest you try to use visuals, such as graphs or tables, to help you.
You are welcome to look online for alternative explanations of value beside what has been analyzed in class. Kenneth French web-
site has data on past value returns.

Part 2 - Backtesting
You should present the results on the backtesting of all the factors, not only the "good ones".
In presenting your results try to present enough performance measures to allow your reader to form a comprehensive picture, at the same time try to avoid overwhelming the reader with tons of non-relevant numbers.
In building your backtesting you should remember to leave out of your process some of the data that you will need to perform an out-of-sample validation at the end of the next assignment.

Part 4 - Portfolio
In this part you are expected to optimize your product using the different parameters at your disposal. For example does your product works better with monthly or quarterly rebalancing? Try to use all the parameters available to you. You should also present the results of this optimization analysis, and not only the final version of the product.

In building this investment product you should target an annualized tracking error of 5% (more or less).

Attachment:- Assignment.rar