You are evaluating two passive equity funds Vanguard Small-growth ETF (VBK) and Invesco Trust (QQQ). Both...

 

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You are evaluating two passive equity funds Vanguard Small-growth ETF (VBK) and Invesco Trust (QQQ). Both funds' objective is to track the performance of small and growth firms. The information about the two funds are provided below. Multi-factor regression model estimates are based on monthly excess returns and shown below: Standard deviation of excess returns Residual standard deviation Multi-factor model regression R VBK 0.056 Factor Market excess return (MRP) Small minus big (SMB) High minus low (HML) Winner minus loser (MOM) Low-beta-bias (BAB) Quality minus Junk (QMJ) 0.03 0.001 +0.974 x MRP +0.428 x SMB -0.177 X HML +0.01 x MOM +0.200 x BAB -0.257 x QMJ 69% Further information about factor returns (monthly frequency): Average Return 0.005 0.002 0.001 0.003 0.006 0.005 Assuming all the factors are uncorrelated. A. Calculate the funds annual excess returns B. Calculate the funds annual Sharpe and Treynor ratios. QQQ 0.076 0.04 0.003 + 1125 x MRP +0.117 SMB -0.612 x HML -0.018 x MOM -0.212 x BAB +0.109 x QM) 63% Standard deviation of returns 0.04 0.03 0.03 0.05 0.04 0.03 C. Calculate the funds' annual Jensen alpha and information ratios using the multi-factor model as the benchmark. D. Do the funds achieve their objective of tracking the performance of small and growth firms? Explain your answer. You are evaluating two passive equity funds Vanguard Small-growth ETF (VBK) and Invesco Trust (QQQ). Both funds' objective is to track the performance of small and growth firms. The information about the two funds are provided below. Multi-factor regression model estimates are based on monthly excess returns and shown below: Standard deviation of excess returns Residual standard deviation Multi-factor model regression R VBK 0.056 Factor Market excess return (MRP) Small minus big (SMB) High minus low (HML) Winner minus loser (MOM) Low-beta-bias (BAB) Quality minus Junk (QMJ) 0.03 0.001 +0.974 x MRP +0.428 x SMB -0.177 X HML +0.01 x MOM +0.200 x BAB -0.257 x QMJ 69% Further information about factor returns (monthly frequency): Average Return 0.005 0.002 0.001 0.003 0.006 0.005 Assuming all the factors are uncorrelated. A. Calculate the funds annual excess returns B. Calculate the funds annual Sharpe and Treynor ratios. QQQ 0.076 0.04 0.003 + 1125 x MRP +0.117 SMB -0.612 x HML -0.018 x MOM -0.212 x BAB +0.109 x QM) 63% Standard deviation of returns 0.04 0.03 0.03 0.05 0.04 0.03 C. Calculate the funds' annual Jensen alpha and information ratios using the multi-factor model as the benchmark. D. Do the funds achieve their objective of tracking the performance of small and growth firms? Explain your answer.

Answer rating: 100% (QA)

To calculate the annual excess returns we need to multiply the monthly excess returns by 12 The excess returns can be calculated by subtracting the riskfree rate from the average return of each fund R... View the full answer