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Example Product Portfolio Gap Analysis Template
1
Fama, Eugene F.; French, Kenneth R. (1992). “The Cross-Section of Expected Stock Returns”.
Journal of Finance
47 (2):
427–465. doi:10.2307/2329112.
Portfolio Gap Analysis
Equity Risk Analysis
Potential Gap
Equity Style & Risk
Over time markets have shown a strong relationship
between risk and return. This means that the
compensation for taking on increased levels of risk is
the potential to earn greater returns. According to
noted academic research by Professors Eugene Fama
and Ken French
1
, there are three “factors” or sources of
potentially higher returns with higher corresponding
risks.
1. Equity Market
2. Small Company Stocks
3. Value Company Stocks
Current Portfolio Recommended Portfolio
MSCI World Market (MSCI AC World Index)
Value
Growth
Small
Large
Lower-priced “value” stocks have historically generated higher long-term returns and risk than
higher-priced “growth” stocks. Small company stocks have historically generated higher long-term
returns and risk than large company stocks.
Small and Value Equity Weightings
Current Recommended Gap
Small 3% 0% 3%
Value 28% 0% 28%
In line with this research, the recommended portfolio emphasizes small capitalization and value
stocks in an effort to increase the return potential of the equity allocation.
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