Fama-French factor definitions
Construction: The Fama-French factors are constructed using the six value-weight portfolios formed on size and book-to-market. (See the description of the six size/book-to-market portfolios.)
SMB (Small Minus Big) is the average return on the three small portfolios minus the average return on the three big portfolios:
SMB = 1/3 (Small Value + Small Neutral + Small Growth) – 1/3 (Big Value + Big Neutral + Big Growth)
HML (High Minus Low) is the average return on the two value portfolios minus the average return on the two growth portfolios:
HML = 1/2 (Small Value + Big Value) – 1/2 (Small Growth + Big Growth)
Rm-Rf, the excess return on the market, is the value-weight return of all Center for Research in Security Prices (CRSP) firms incorporated in the United States and listed on the NYSE, AMEX, or NASDAQ that have a CRSP share code of 10 or 11 at the beginning of month t, good shares and price data at the beginning of t, and good return data for t minus the one-month Treasury bill rate (from Ibbotson Associates).
Stocks: Rm-Rf includes all NYSE, AMEX, and NASDAQ firms. SMB and HML for July of year t to June of t+1 include all NYSE, AMEX, and NASDAQ stocks for which we have market equity data for December of t-1 and June of t, and (positive) book equity data for t-1.
Morningstar category definitions
Allocation categories by equity percentage
Funds in the following five Allocation categories seek to provide both income and capital appreciation by investing in multiple asset classes, including stocks, bonds, and cash. These portfolios are dominated by domestic holdings and have equity exposures in the ranges specified in the category names:
- Allocation — 15% to 30% Equity
- Allocation — 30% to 50% Equity
- Allocation — 50% to 70% Equity
- Allocation — 70% to 85% Equity
- Allocation — 85%+ Equity
World Allocation portfolios seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds, and cash. While these portfolios do explore the whole world, most of them focus on the United States, Canada, Japan, and the larger markets in Europe. It is rare for such portfolios to invest more than 10% of their assets in emerging markets. These portfolios typically have at least 10% of assets in bonds, less than 70% of assets in stocks, and at least 40% of assets in non-U.S. stocks or bonds.
Tactical Allocation portfolios seek to provide capital appreciation and income by actively shifting allocations across investments. These portfolios have material shifts across equity regions and bond sectors on a frequent basis. To qualify for the tactical allocation category, the fund must have minimum exposures of 10% in bonds and 20% in equity. Next, the fund must historically demonstrate material shifts in sector or regional allocations either through a gradual shift over three years or through a series of material shifts on a quarterly basis. Within a three-year period, typically the average quarterly change between equity regions and bond sectors exceeds 15% or the difference between the maximum and minimum exposure to a single equity region or bond sector exceeds 50%.