Module 3: Asset Allocation

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Suppose that you want to form a passive market-value-weighted investment portfolio that invests in five asset classes:

US large-cap

US mid-small cap

US Bond

Emerging market equity

Developed market equity (without USA)

What would be the weight of each of these five asset classes in your portfolio?

How would you implement your strategy using the existing ETFs in our markets if you have 1 million dollars?

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To answer this question, you need to find the market value of each asset class. You can find an index tracking each asset class and obtain the information on the total market capitalization of all the securities in that index.

For example, for US bond, you can use The Bloomberg Barclays U.S. Aggregate Bond Index, which is a broad based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. This includes Treasuries, government-related and corporate securities, mortgage backed securities, asset-backed securities and collateralised mortgage-backed securities. From Bloomberg, it shows that the market value of all the securities in the index is 23.57 trillions as of Feb 17, 2020.

Here is a list of the indexes for the rest of the asset classes:

US large-cap: SP500 index

US mid-small cap: Russell 2500 index

Developed market equity (without USA): MSCI world ex USA index (in US dollars, Size (standard, including large cap and mid cap))

Emerging market equity: MSCI emerging market index (in US dollars, Size(standard, including large cap and mid cap)

Although you may not have access to Bloomberg as off-campus students, you can google each index name + fact sheet, and should be able to find the most recent fact sheet for each of the four indexes. Find the total market cap for all the securities in each index, then calculate the weights in each asset class if you pursue a passive market portfolio.

After that, assuming that you have $1 million dollars, tell us how you would implement your investment strategy using the existing index funds in our markets.

i dont know where to find thT info? but can we just use the following numbers:

1. 10

2. 20

3. 30

4. 40

5. 50

thank you!