Compare the Fund Performance with Its Investment Strategy
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Compare the fund performance with its investment strategy
1. Download the prospectus of GSATX and VISVX from Goldman Sack Asset Management and Vanguard websites respectively. Then, we summarize their investment strategies.
GSATX
i. The Fund invests in a broadly diversified portfolio of equity investments in small-cap U.S. issuers.
ii. The Fund maintains risk, style, and capitalization characteristics similar to the Russell 2000® Value Index, which is designed to represent an investable universe of small-cap companies with above average price to book ratios and earnings growth expectations.
iii. The Fund may also invest in fixed income securities that are considered to be cash equivalents.
iv. The Fund’s benchmark index is the Russell 2000® Value Index.
VISVX
i. The Fund employs an indexing investment approach designed to track the performance of the CRSP US Small Cap Value Index, a broadly diversified index of value stocks of small U.S. companies. The Fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the Index, holding each stock in approximately the same proportion as its weighting in the Index.
2. Test the betas of four factors. Use the same method as part c, and we can get the following results.
Small Value Mutual Fund
Goldman Sachs
Vanguard
GSATX
VISVX
βRm-Rf
tRm-Rf
P-valueRm-Rf
βRm-Rf
tRm-Rf
P-valueRm-Rf
1.074
8.393
6.14E-14
1.978
0.979
-2.102
0.037
1.970
P-valueSMB
P-valueSMB
0.929
3.916
0.000
1.978
0.504
15.644
1.24363E-38
1.970
P-valueHML
P-valueHML
0.234
1.115
0.267
1.978
0.574
17.361
1.87461E-44
1.970
P-valueLiq
P-valueLiq
-36.805
-2.391
0.018
1.978
0.668
0.231
0.817
1.970
We can find that, except for book-to-market value factor, the other three factors affect the return of GSATX, and that, except for liquidity factor, the other three factors affect the return of VISVX.
3. Analyze the relations between the performances of these two funds and their investment strategy. According to step 2, size factor affects GSATX’s return, and the SMB coefficient is positive, which implies a larger exposure to the small