1. Using all available data, both historical and forward looking, estimate the returns, risks, and correlations for the following asset classes. a) US Equities b) US Long-term Treasury Bonds c) Gold Document your sources of data and the model(s) you used to estimate returns and correlations. Do not rely solely on historical returns for your estimate of future returns. 2. Using your estimates from problem 1, estimate the risk and return for a portfolio that is 60% US Equities, 35% US Long-term Treasury Bonds, and 5\% gold. 3. Using your estimates from problem 1, construct a portfolio with a standard deviation no higher than 10% that has the highest expected rate of return. 4. There are numerous ETFs that provide broad exposure to the broad US equity market. Identify at least five and make a recommendation as to which one is the best addition to a portfolio to represent the asset class of US Equities. Some of the criteria to consider may include: - Index represented - Tracking error - Expense ratio - Trading volume - Assets under management (AUM) - Portfolio turnover - Tax efficiency What other criteria do you feel are important? 5. The role of "hedge assets" such as gold and commodities in portfolios is quite controversial. Some view these as asset classes in their own right. Others dismiss them since they do not produce income. In general, insurance has a negative expected value, but consumers purchase it to cover catastrophic situations. If gold/commodities/bitcoin are hedges with negative expected return, what is their role in a portfolio? In our negative real-interest-rate environment, could equities also be a hedge asset with a negative expected return? Hints: ETFs make good proxies for asset classes as far back as they go. You can get historical correlations quickly from www portfoliovisualizer.com. The Grinold-Kroner model is one method of extracting expected returns from current market prices. https:/breakingdownfinance com/finance-topics/equity= valuation/grinold-and-kroner-model/ To see what other firms are forecasting, Google "Capital market assumptions" and you will see what many major firms forecast. For example, see https://wwwagr com/Insights/Research/Alternative- Thinking/2021-Capital-Markets-Assumptions-for-Major-Asset- Classes There are many ETF and Mutual Fund Screeners out there. Yahoo, Google, Morningstar, and most brokerage web sites have them. ETFdb.com has much information on ETFs and a good screener at httpsilletfob.com/screener. Prepare a 5 to 7 -minute PowerPoint presentation to present your results to a sophisticated High Net Worth (HNW) client. Assume that this client has already agreed to a portfolio constructed mostly from ETFs with a standard deviation of no more than 10%. The client is keenly interested in how you created your forecasts of future returns for various asset classes, along which ETFs provide the best return/least tracking error. Your client realizes that expense ratios alone don't tell the whole story. Your client is also interested in your views on gold/commodities/bitcoin. One of the recent fads in investing is so-called "smart" beta. These are formulaic quant strategies often delivered in an ETF format. They are designed to capture factors that may deliver superior performance. Popular smart-beta strategies include: - Low volatility - High dividend yield - Growth - Value - Momentum - Equally weighted - Weighting assets based on fundamentals such as earnings or assets rather than market capitalization. Your asset management company has decided to enter this space by offering a plethora of smart-beta ETFs. The marketing ("distribution") approach will be to target investment advisers who will select these funds for their clients. Traditionally, mutual funds were sold by brokers who earned commissions ("loads") on the sale, either as up-front loads when the funds were sold, ongoing loads, or back-end loads if the shares were redeemed too early. Of course, this created conflicts of interest that incentivized brokers to recommend funds that paid the highest commission even if those funds were not in the best interest of the clients. In recent years, more and more investors use Registered Investment Advisers (RIAs) who are compensated for their services with fees based on assets under management(AUM). ETFs, which don't pay commissions, are attractive to RIAs and their clients as they generally have low expense ratios, and there is no conflict of interest. Your task is to choose a smart beta strategy and construct a formula for including stocks in the index/portfolio. You will then construct a smart-beta portfolio with at least 50 stocks. 1. What smart-beta strategy did you choose? Why do you think it may deliver superior performance? 2. What is your formula for selecting stocks? As a low-cost quant-based smart-beta index fund, the stocks cannot be selected by eyeball, but must be selected according to your formula. This formula is then used to create an index which the ETF will track. (Third parties such as Nasdaq will happily calculate the index for a modest fee.) Make sure that you pay close attention to the liquidity of the underlying assets so that they are easily tradable with low transactions costs. As arbitrageurs often need to short the underlying assets, make sure they are easy to short. The formula must be clearly disclosed and detailed enough that Your task is to choose a smart beta strategy and construct a formula for including stocks in the index/portfolio. You will then construct a smart-beta portfolio with at least 50 stocks. 1. What smart-beta strategy did you choose? Why do you think it may deliver superior performance? 2. What is your formula for selecting stocks? As a low-cost quant-based smart-beta index fund, the stocks cannot be selected by eyeball, but must be selected according to your formula. This formula is then used to create an index which the ETF will track. (Third parties such as Nasdaq will happily calculate the index for a modest fee.) Make sure that you pay close attention to the liquidity of the underlying assets so that they are easily tradable with low transactions costs. As arbitrageurs often need to short the underlying assets, make sure they are easy to short. The formula must be clearly disclosed and detailed enough that a low-skilled clerk can implement it. 3. What stocks are in the portfolio and what are their weights in the portfolio? (You may include a spreadsheet.) 4. What are the characteristics of the portfolio? Use a tool such as Morningstar's Portfolio X-Ray (hitts: // www momingstar.com/InvGilossary/portfoliotools. aspx) or other tools to provide information about the portfolio. Useful information may include industry allocations, average market capitalization, expected risk, and so forth. There are many stock screeners available on the internet that can help you select stocks with various characteristics. Most brokerage firms have them. Other useful screeners include Yahoo, Morningstar, and finance.google.com. The Bloomberg terminal also has a wealth of screening and portfolio analytics tools. Create a 5 to 7-minute PowerPoint presentation to market your new ETF to investment advisers. (Hint: ETF Fact Sheets can provide good clues as to the information that investors and thus investment advisers want to see. For example see https://www, ishares.com/us/literature/fact-sheet/mtum-ishares- Be prepared to present your results to the class in a PowerPoint presentation. 1. Using all available data, both historical and forward looking, estimate the returns, risks, and correlations for the following asset classes. a) US Equities b) US Long-term Treasury Bonds c) Gold Document your sources of data and the model(s) you used to estimate returns and correlations. Do not rely solely on historical returns for your estimate of future returns. 2. Using your estimates from problem 1, estimate the risk and return for a portfolio that is 60% US Equities, 35% US Long-term Treasury Bonds, and 5\% gold. 3. Using your estimates from problem 1, construct a portfolio with a standard deviation no higher than 10% that has the highest expected rate of return. 4. There are numerous ETFs that provide broad exposure to the broad US equity market. Identify at least five and make a recommendation as to which one is the best addition to a portfolio to represent the asset class of US Equities. Some of the criteria to consider may include: - Index represented - Tracking error - Expense ratio - Trading volume - Assets under management (AUM) - Portfolio turnover - Tax efficiency What other criteria do you feel are important? 5. The role of "hedge assets" such as gold and commodities in portfolios is quite controversial. Some view these as asset classes in their own right. Others dismiss them since they do not produce income. In general, insurance has a negative expected value, but consumers purchase it to cover catastrophic situations. If gold/commodities/bitcoin are hedges with negative expected return, what is their role in a portfolio? In our negative real-interest-rate environment, could equities also be a hedge asset with a negative expected return? Hints: ETFs make good proxies for asset classes as far back as they go. You can get historical correlations quickly from www portfoliovisualizer.com. The Grinold-Kroner model is one method of extracting expected returns from current market prices. https:/breakingdownfinance com/finance-topics/equity= valuation/grinold-and-kroner-model/ To see what other firms are forecasting, Google "Capital market assumptions" and you will see what many major firms forecast. For example, see https://wwwagr com/Insights/Research/Alternative- Thinking/2021-Capital-Markets-Assumptions-for-Major-Asset- Classes There are many ETF and Mutual Fund Screeners out there. Yahoo, Google, Morningstar, and most brokerage web sites have them. ETFdb.com has much information on ETFs and a good screener at httpsilletfob.com/screener. Prepare a 5 to 7 -minute PowerPoint presentation to present your results to a sophisticated High Net Worth (HNW) client. Assume that this client has already agreed to a portfolio constructed mostly from ETFs with a standard deviation of no more than 10%. The client is keenly interested in how you created your forecasts of future returns for various asset classes, along which ETFs provide the best return/least tracking error. Your client realizes that expense ratios alone don't tell the whole story. Your client is also interested in your views on gold/commodities/bitcoin. One of the recent fads in investing is so-called "smart" beta. These are formulaic quant strategies often delivered in an ETF format. They are designed to capture factors that may deliver superior performance. Popular smart-beta strategies include: - Low volatility - High dividend yield - Growth - Value - Momentum - Equally weighted - Weighting assets based on fundamentals such as earnings or assets rather than market capitalization. Your asset management company has decided to enter this space by offering a plethora of smart-beta ETFs. The marketing ("distribution") approach will be to target investment advisers who will select these funds for their clients. Traditionally, mutual funds were sold by brokers who earned commissions ("loads") on the sale, either as up-front loads when the funds were sold, ongoing loads, or back-end loads if the shares were redeemed too early. Of course, this created conflicts of interest that incentivized brokers to recommend funds that paid the highest commission even if those funds were not in the best interest of the clients. In recent years, more and more investors use Registered Investment Advisers (RIAs) who are compensated for their services with fees based on assets under management(AUM). ETFs, which don't pay commissions, are attractive to RIAs and their clients as they generally have low expense ratios, and there is no conflict of interest. Your task is to choose a smart beta strategy and construct a formula for including stocks in the index/portfolio. You will then construct a smart-beta portfolio with at least 50 stocks. 1. What smart-beta strategy did you choose? Why do you think it may deliver superior performance? 2. What is your formula for selecting stocks? As a low-cost quant-based smart-beta index fund, the stocks cannot be selected by eyeball, but must be selected according to your formula. This formula is then used to create an index which the ETF will track. (Third parties such as Nasdaq will happily calculate the index for a modest fee.) Make sure that you pay close attention to the liquidity of the underlying assets so that they are easily tradable with low transactions costs. As arbitrageurs often need to short the underlying assets, make sure they are easy to short. The formula must be clearly disclosed and detailed enough that Your task is to choose a smart beta strategy and construct a formula for including stocks in the index/portfolio. You will then construct a smart-beta portfolio with at least 50 stocks. 1. What smart-beta strategy did you choose? Why do you think it may deliver superior performance? 2. What is your formula for selecting stocks? As a low-cost quant-based smart-beta index fund, the stocks cannot be selected by eyeball, but must be selected according to your formula. This formula is then used to create an index which the ETF will track. (Third parties such as Nasdaq will happily calculate the index for a modest fee.) Make sure that you pay close attention to the liquidity of the underlying assets so that they are easily tradable with low transactions costs. As arbitrageurs often need to short the underlying assets, make sure they are easy to short. The formula must be clearly disclosed and detailed enough that a low-skilled clerk can implement it. 3. What stocks are in the portfolio and what are their weights in the portfolio? (You may include a spreadsheet.) 4. What are the characteristics of the portfolio? Use a tool such as Morningstar's Portfolio X-Ray (hitts: // www momingstar.com/InvGilossary/portfoliotools. aspx) or other tools to provide information about the portfolio. Useful information may include industry allocations, average market capitalization, expected risk, and so forth. There are many stock screeners available on the internet that can help you select stocks with various characteristics. Most brokerage firms have them. Other useful screeners include Yahoo, Morningstar, and finance.google.com. The Bloomberg terminal also has a wealth of screening and portfolio analytics tools. Create a 5 to 7-minute PowerPoint presentation to market your new ETF to investment advisers. (Hint: ETF Fact Sheets can provide good clues as to the information that investors and thus investment advisers want to see. For example see https://www, ishares.com/us/literature/fact-sheet/mtum-ishares- Be prepared to present your results to the class in a PowerPoint presentation