Building Fund of Funds Portfolios from Index and Quantitative Funds
Summary
This document compares long-only index funds, index-enhanced funds, and quantitative funds in the Chinese public fund market. It notes differences in fees and subscription or redemption efficiency, and frames market, sector, size, and other style exposures as sources of beta that can guide fund selection and diversification. The proposed workflow is to identify funds with stable, relevant characteristics, assess their beta exposures, then allocate based on a diversified portfolio design and expected returns.
It outlines four portfolio approaches. Broad-market ETFs use a modified mean-variance framework with flexible rebalancing; sector ETFs use principal component analysis to reduce inter-sector correlation before risk-parity weighting. Enhanced index funds are screened for stable style and excess returns, while quantitative funds are compared with major indexes and style factors to select funds with different exposures. These are proposed portfolio designs rather than demonstrated performance results. The document provides market observations and methods, but no detailed backtest evidence in the supplied text, and it explicitly does not offer investment advice.
Key ideas
- Fund types differ in cost, trading efficiency, and investment characteristics.
- Market, sector, size, and style betas can serve as organizing exposures for fund-of-funds construction.
- The proposed workflow screens funds first, then combines them with diversification as a central goal.
- For sector ETFs, the document proposes PCA followed by risk-parity weighting.
- The supplied text describes portfolio methods but gives no detailed performance evidence.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.