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CFA Level I · CFA Level I Exam · The Capital Asset Pricing Model, Market Model, and Other Factor-Based Equity Models

An analyst estimates a Fama-French three-factor regression for a fund and finds a significantly negative loading on HML and a significantly positive loading on SMB. The fund's holdings are most likely tilted toward:

The fund most likely holds small-cap growth stocks. A positive SMB loading signals a tilt to small firms, and a negative HML loading signals a tilt to low book-to-market, or growth, stocks rather than value stocks.

  1. Alarge-cap value stocks
  2. Bsmall-cap growth stocksCorrect
  3. Clarge-cap growth stocks

Explanation

A positive SMB loading indicates a small-cap tilt. A negative HML loading indicates exposure to low book-to-market stocks, which are growth stocks. Together this points to small-cap growth.

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