Question

1. Given the data below, explain the distribution of weights for every portfolio? For example, the Eq-Wtd portfolio allocates 20% weights to all five asset classes because it is an equally-weighted portfolio.

Portfolios	---------------------------Weights----------------------------
	LGGR	LGVAL	SMGR	SMVAL	INTL	m	s	Prob(<0)
Eq-Wtd	0.200	0.200	0.200	0.200	0.200	0.126	0.161	0.241
Prop-Wtd	0.350	0.350	0.100	0.100	0.100	0.129	0.158	0.230
Tilt	0.300	0.400	0.050	0.150	0.100	0.132	0.153	0.216
l = 1	0.000	0.347	0.000	0.653	0.000	0.145	0.156	0.197
l = 2	0.000	0.622	0.000	0.378	0.000	0.142	0.149	0.190
Min Var.	0.000	0.632	0.000	0.041	0.327	0.126	0.138	0.198
Max Ret.	0.000	0.000	0.000	1.000	0.000	0.148	0.170	0.216

Answer 1

LGGR = Large Cap Growth .Stocks LGVL = Large Cap Value Stocks , SMGR - Small Cap Growth Stocks, SMVL = Small Cap Value Stocks . INTL = International Stocks. M = Expected Market Return of Portfolio . S = Standard deviation of the Returns , and Prob = Probability of Returns being negative.

1.The first row shows an equally weighted portfolio across large/Small Caps as well as Growth/Value stocks with expected market return  = 12.6% , and Standard deviation 16.1% . It also shows probability of negative return @24.1% which is the highest .

2. This portfolio has a larger 35%  weight to Large Value and Large Growth and lower 10% each to Small Growth and Small Value as well as international stocks. Mean Return 12.9% with deviation 15.3% and Prob of negative return 21.6% . This is large cap oriented

3.Tilted towards Value ( 40+15%)=55% .Growth 35% and International 10%

4.L1 seems to be 100% value portfolio with 65% to small value and balance Large Value. No Large or International.

5.L2 seems to 100% value but skewed towards large cap value @62.2%.

6. This portfolio is also 100% Value with 63.2% on Large Cap.This allocation  gives the Min Variation 13.8% but has one of the lowest returns of 12.6% ( along with Eq wtd) .

7. This is a 100% allocation to SmallCap Value stocks resulting in Max return of 14.8% but it has the highest variance of 17%

Conclusion is the highest returns comes with highest variation ( volatility/risk) whereas if one wants to minimize risk  then the returns are the lowest. also to minimize probability of negative return chose L2 ( value portfolio) which has the lowest  at 19% .