Acta Univ. Agric. Silvic. Mendelianae Brun. 2017, 65(6), 1851-1863 | DOI: 10.11118/actaun201765061851

Investment Style Preference and its Effect Upon Performance of Tracking Portfolios

Martin Boďa, Mária Kanderová
Quantitative Methods and Information Systems Department, Faculty of Economics, Matej Bel University in Banská Bystrica, Národná 1, 974 01 Banská Bystrica, Slovak Republic

Any task of portfolio creation requires that a suitable pre-selection of assets is made, out of which the resultant portfolio is to be formed. Several approaches in passive investing implemented through portfolio tracking are applied in practice, and assets are pre-selected frequently on the basis of their capitalization or value/growth potential. The paper studies to which extent the investment style practiced by a small investor affects the performance of the tracking portfolio. The design of the analysis is experimental and hinges on tracking the S & P 500 Index in three different periods with assets pre-selected by diverse investment styles. Taking the approach of with linear and quadratic tracking, two factors are analyzed on that occasion: the investment style (big vs. small market capitalization, value vs. growth assets, Fama-French stratas of assets) and the number of assets (10, 20, 30, 40, 50 assets). It is found that while small market capitalization portfolios were preferable in the first two parts of the investigated time frame, this pattern ceased to hold in the third last part with no guidance for a recommendable investment style.

Keywords: investment style, market capitalization, value/growth, Fama-French classification, performance, linear tracking, quadratic tracking, transaction costs
Grants and funding:

The support of a grant scheme of VEGA [# 1/0554/16] is acknowledged.

Published: December 7, 2017  Show citation

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Boďa, M., & Kanderová, M. (2017). Investment Style Preference and its Effect Upon Performance of Tracking Portfolios. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 65(6), 1851-1863. doi: 10.11118/actaun201765061851
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