The Mathematics of Financial Modelingand Investment Management

19-EquityPort Page 590 Friday, March 12, 2004 12:40 PM

590 The Mathematics of Financial Modeling and Investment Management

EXHIBIT 19.14 Factor Exposures of a Portfolio Tilted Towards Earnings Yield

Risk Index Exposures (Std. Dev.)

Mgd. Bmk. Act. Mgd. Bmk. Act.

Volatility −0.126 −0.084 −0.042 Value 0.030 −0.070 0.100

Momentum 0.013 −0.064 0.077 Earnings variation −0.028 −0.088 0.060

Size 0.270 0.370 −0.100 Leverage −0.006 −0.106 0.100

Size nonlinearity 0.067 0.106 −0.038 Currency sensitivity −0.105 −0.012 −0.093

Trading activity 0.095 −0.005 0.100 Yield 0.134 0.034 0.100

Growth −0.023 −0.045 0.022 Non-EST universe 0.000 0.000 0.000

Earnings Yield 0.534 0.034 0.500

Industry Weights (Percent)

Mining and Metals

Gold

Forestry and Paper

Chemicals

Energy Reserves

Oil Refining

Oil Services

Food and Beverages

Alcohol

Tobacco

Home Products

Grocery Stores

Consumer Durables

Motor Vehicles and Parts

Apparel and Textiles

Clothing Stores

Specialty Retail

Department Stores

Constructn. and Real Prop.

Publishing

Media

Hotels

Restaurants

Entertainment

Leisure

Environmental Services

Heavy Electrical Eqp.

Mgd. Bmk. Act. Mgd. Bmk. Act.

0.022

0.000

0.000

1.717

4.490

3.770

0.977

0.823

0.365

3.197

0.648

0.636

0.000

0.454

0.141

0.374

0.025

3.375

9.813

0.326

0.358

0.067

0.000

0.675

0.000

0.000

1.303

0.606

0.161

0.871

2.046

4.297

1.417

0.620

3.780

0.515

0.732

2.435

0.511

0.166

0.621

0.373

0.341

2.721

3.606

0.288

0.778

1.498

0.209

0.542

1.630

0.409

0.220

1.949

−0.585

−0.161

−0.871

−0.329

0.193

2.353

0.357

−2.956

−0.151

2.465

−1.787

0.125

−0.166

−0.167

−0.232

0.033

−2.696

−0.231

9.526

−0.452

−1.140

−0.141

−0.542

−0.955

−0.409

−0.220

−0.647

Heavy Machinery

Industrial Parts

Electric Utility

Gas Utilities

Railroads

Airlines

Truck/Sea/Air Freight

Medical Services

Medical Products

Drugs

Electronic Equipment

Semiconductors

Computer Hardware

Computer Software

Defense and Aerospace

Telephone

Wireless Telecom.

Information Services

Industrial Services

Life/health Insurance

Property/Casualty Ins.

Banks

Thrifts

Securities and Asst. Mgmt.

Financial Services

Internet

Equity REIT

0.000 0.141 −0.141

1.366 1.469 −0.103

4.221 1.956 2.265

0.204 0.456 −0.252

0.185 0.373 −0.189

0.000 0.206 −0.206

0.000 0.162 −0.162

0.000 0.789 −0.789

1.522 3.599 −2.077

7.301 10.000 −2.699

0.525 1.985 −1.460

3.227 4.509 −1.282

2.904 4.129 −1.224

7.304 6.256 1.048

1.836 1.336 0.499

6.290 3.680 2.610

2.144 1.565 0.580

0.921 2.698 −1.777

0.230 0.670 −0.440

1.987 0.938 1.048

4.844 2.541 2.304

8.724 7.580 1.144

0.775 0.362 0.413

3.988 2.017 1.971

5.510 6.321 −0.811

0.434 0.725 −0.291

0.000 0.193 −0.193

Note: Mgd = Managed; Bmk = S&P 500 (the benchmark); Act = Active = Managed

− Benchmark

Source: Exhibit 13.11 in Frank J. Fabozzi, Frank J. Jones, and Raman Vardharaj,

“Multi-Factor Risk Models,” Chapter 13 in Frank J. Fabozzi and Harry M.

Markowitz (eds.), The Theory and Practice of Investment Management (Hobo-

ken, NJ: John Wiley & Sons, 2002).