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Additional regression analyses of the fund’s historical factor exposure

14 May 2015

Below, we include results from additional regression analyses of the funds historical factor exposure.

Table 1 shows results from a multivariate regression where the fund’s benchmarks are included as an explanatory factor. As in our report, published 4 May1, all relative returns, benchmarks and factor portfolios are measured in USD.

Table 1

Multifactor regression coefficients (t-values in parentheses). Significant (non-zero at 5% confidence) coefficients in bold type. Annualized intercept and intercept estimate bounds at a 95% confidence level are given at the bottom of the tables. R-squared is not adjusted for the number of factors in the model.

GPFG Since inception Last 10 years Last 5 years
Benchmark 0.03 (5.4) 0.01 (1.9) 0.01 (1.2)
Term -0.02 (-2.1) 0.00 (-0.2) -0.03 (-1.8)
Credit Aa 0.04 (3.1) 0.09 (3.7) -0.05 (-1.7)
Credit Baa 0.05 (4.2) 0.06 (3.1) 0.01 (0.2)
Credit Caa 0.00 (-1.1) 0.00 (-0.3) 0.00 (0.5)
Emerging 0.00 (1.0) 0.01 (1.1) -0.01 (-1.7)
Value/Growth -0.01 (-1.5) 0.01 (0.5) -0.02 (-1.7)
Small/Large 0.02 (1.9) -0.01 (-0.6) 0.03 (1.6)
Low Volatility 0.00 (-0.2) -0.02 (-1.7) -0.02 (-2.4)
% variability explained (R2) 44 % 57 % 45 %
Annualized intercept (alpha) 0.141% (1.0) -0.0112% (-0.1) 0.1795% (1.1)
Intercept – Lower bound -0.1447% -0.4194% -0.1612%
Intercept – Upper bound 0.4267% 0.397% 0.5203%
Equity portfolio Since inception Last 10 years Last 5 years
Benchmark 0.01 (1.3) 0.00 (0.6) 0.00 (-0.3)
Emerging 0.01 (1.6) 0.01 (0.9) -0.02 (-3.3)
Value/Growth -0.04 (-4.4) -0.03 (-1.8) -0.03 (-2.3)
Small/Large 0.02 (1.7) 0.00 (0.2) 0.05 (2.6)
Low Volatility -0.02 (-3.6) -0.04 (-4.2) -0.03 (-3.6)
% variability explained (R2) 28 % 44 % 52 %
Annualized intercept (alpha) 0.5232% (2.9) 0.3344% (1.7) 0.1305% (0.8)
Intercept – Lower bound 0.1638% -0.0622% -0.1801%
Intercept – Upper bound 0.8827% 0.731% 0.4411%
Fixed-income portfolio Since inception Last 10 years Last 5 years
Benchmark 0.06 (6.3) 0.05 (3.3) 0.01 (0.9)
Term -0.07 (-4.2) -0.05 (-2.1) -0.05 (-2.4)
Credit Aa 0.08 (3.9) 0.14 (3.9) -0.03 (-0.6)
Credit Baa 0.11 (6.3) 0.15 (4.8) -0.02 (-0.7)
Credit Caa 0.00 (-0.6) 0.00 (-0.3) 0.00 (0.2)
% variability explained (R2) 37 % 47 % 12 %
Annualized intercept (alpha) 0.0195% (0.1) -0.1641% (-0.5) 0.2929% (1.2)
Intercept – Lower bound -0.4161% -0.8491% -0.1803%
Intercept – Upper bound 0.4552% 0.5209% 0.7662%

In Table 2 we show the results for regression analysis where the relative returns and the fund’s benchmarks are measured in the fund’s currency basket, risk factor returns are in USD.

Table 2

Multifactor regression coefficients (t-values in parentheses). Significant (non-zero at 5% confidence) coefficients in bold type. Annualized intercept and intercept estimate bounds at a 95% confidence level are given at the bottom of the tables. R-squared is not adjusted for the number of factors in the model.

GPFG Since inception Last 10 years Last 5 years
Benchmark 0.05 (5.2) 0.03 (2.0) 0.01 (1.2)
Term -0.02 (-1.9) 0.00 (-0.1) -0.03 (-1.8)
Credit Aa 0.03 (2.3) 0.08 (3.4) -0.05 (-1.7)
Credit Baa 0.04 (2.9) 0.05 (2.8) 0.00 (-0.1)
Credit Caa -0.01 (-2.4) -0.01 (-0.5) 0.00 (0.4)
Emerging 0.01 (1.9) 0.01 (1.4) -0.01 (-1.5)
Value/Growth -0.01 (-1.6) 0.01 (0.5) -0.02 (-1.8)
Small/Large 0.02 (2.3) -0.01 (-0.6) 0.03 (1.6)
Low Volatility 0.00 (0.2) -0.02 (-1.5) -0.02 (-2.6)
% variability explained (R2) 44 % 57 % 45 %
Annualized intercept (alpha) 0.0075% (0.0) -0.1114% (-0.5) 0.1409% (0.8)
Intercept – Lower bound -0.2939% -0.5412% -0.2108%
Intercept – Upper bound 0.3088% 0.3184% 0.4925%
Equity portfolio Since inception Last 10 years Last 5 years
Benchmark 0.01 (1.5) 0.01 (1.2) 0.00 (0.4)
Emerging 0.01 (1.7) 0.01 (1.1) -0.02 (-3.0)
Value/Growth -0.04 (-4.5) -0.03 (-1.9) -0.03 (-2.4)
Small/Large 0.02 (1.8) 0.01 (0.3) 0.05 (2.6)
Low Volatility -0.02 (-3.2) -0.04 (-3.8) -0.02 (-3.2)
% variability explained (R2) 28 % 44 % 52 %
Annualized intercept (alpha) 0.4992% (2.7) 0.2779% (1.4) 0.0919% (0.6)
Intercept – Lower bound 0.1352% -0.1272% -0.2336%
Intercept – Upper bound 0.8632% 0.6829% 0.4174%
Fixed-income portfolio Since inception Last 10 years Last 5 years
Benchmark 0.15 (3.7) 0.11 (1.7) -0.09 (-2.6)
Term -0.10 (-3.8) -0.07 (-1.6) 0.02 (0.7)
Credit Aa 0.07 (3.4) 0.16 (4.2) 0.02 (0.5)
Credit Baa 0.10 (5.3) 0.14 (4.2) 0.01 (0.2)
Credit Caa -0.01 (-0.8) 0.00 (0.2) -0.01 (-0.5)
% variability explained (R2) 30 % 44 % 21 %
Annualized intercept (alpha) -0.2603% (-1.0) -0.3887% (-1.0) 0.433 (1.9)
Intercept – Lower bound -0.7855% -1.1567% -0.0326%
Intercept – Upper bound 0.265% 0.3794% 0.8986%

In Table 3 we show the correlations between the factor returns and the fund’s benchmarks over the period.

Table 3

Correlation matrix between monthly factor returns

  Fund   benchmark Equity   benchmark Fixed   income benchmark Term Credit Aa Credit Baa Credit Caa Emerging/ developed Value/
Growth
Small/
Large
Low   volatility -0.65 -0.78 -0.17 0.29 -0.32 -0.37 -0.38 -0.77 -0.52 -0.55
Small/Large 0.33 0.31 0.20 -0.11 0.19 0.30 0.16 0.39 0.74  
Value/Growth 0.34 0.37 0.11 -0.19 0.19 0.31 0.23 0.35    
Emerging/dev. 0.68 0.81 0.17 -0.26 0.31 0.38 -0.26      
Credit Caa 20 % 40 % -20 % -0.16 0.23 0.30        
Credit Baa 0.25 0.33 -0.07 -0.10 0.21          
Credit Aa 0.20 0.31 -0.18 -0.37            
Term 0.01 -0.23 0.51              
Fix.inc.bench. 69 % 37 %                
Equity bench. 0.91                  

1«Government Pension Fund Global Historical Performance Measurement»