Hello, can someone please help me understand the below CFAI equity Qs?
How do we know that the size factor is referring to small cap firms here? The benchmark had negative returns from the size factor and fund had +ve returns (so im guessing the fund had an overweight to size) but how do we know that the OW was to small cap and not large cap?
These are the four Fama-French factors, which you’re expected to know. The size factor is SML: small minus large. So a positive coefficient suggests a small-cap tilt and a negative coefficient suggests a large-cap tilt.
Not necessarily. The benchmark has a negative size coefficient; that merely means that it appears to be tilted more toward large cap than to small cap. It doesn’t say that the returns from size were negative.
Again, not necessarily. All we know is that the fund appears to have a slight tilt away from large cap and toward small cap.
There is no such thing as “an overweight to size”. You can be overweight large cap and underweight small cap, or underweight large cap and overweight small cap.
Also, as a general rule, you shouldn’t guess.
By the combination of the definition of the size factor (SML) and the positive coefficient.